Labor Productivity Dynamics in Spain: A Firm-Level Perspective: Spain

LaborProductivityDynamicsinSpain:AFirm-LevelPerspective SPAIN NicolasArreguiandYuShiSIP/2023/012 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember16,2022.ThispaperisalsopublishedseparatelyasIMFCountryReportNo23/034. 2023 JAN INTERNATIONALMONETARYFUND2 ©2023InternationalMonetaryFundSIP/2023/012 IMFSelectedIssuesPaper EuropeanDepartment LaborProductivityDynamicsinSpain:AFirm-LevelPerspectivePreparedbyNicolasArreguiandYuShi AuthorizedfordistributionbyDoraIakovaJanuary2023 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember16,2022.ThispaperisalsopublishedseparatelyasIMFCountryReport No23/034. ABSTRACT:Thispaperusesfirm-leveldatathatcoversover1.2millionSpanishfirmsduringtheperiodof2003-2019toprovideanupdatedassessmentofthedriversoflaborproductivityintheSpanisheconomy,focusingonbothTFPandfirminvestment.Theempiricalanalysisshowssignificantdifferencesinproductionconstraintsinboththecapitalmarketandthelabormarket,acrossfirmsizeandage.ThispaperalsoincludesareviewofSpain’sambitiousreformcommitmentsundertheRecovery,TransformationandResiliencePlanandconcludeswithrecommendationsforfurtheraction. RECOMMENDEDCITATION:Arregui,NicolasandShi,Yu.LaborProductivityDynamicsinSpain:AFirm-levelPerspective.IMFSelectedIssuesPaper(SIP/2023/012).Washington,D.C.:InternationaMonetaryFund. JELClassificationNumbers: D24;D25;E22;E23;E24;O47 Keywords: Productivityfinancialconstraint;firmsize;competition;laborregulation Author’sE-MailAddress: NArregui@imf.org;YShi2@imf.org SELECTEDISSUESPAPERS LaborProductivityDynamicsinSpain:AFirm-LevelPerspective SPAIN December16,2022 SPAIN SELECTEDISSUES PreparedByNicolasArreguiandYuShi. ApprovedBy EuropeanDepartment CONTENTS LABORPRODUCTIVITYDYNAMICSINSPAIN:AFIRM-LEVELPERSPECTIVE2 A.Introduction2 B.DataandEmpiricalStrategy4 C.Results6 D.RecentPoliciestoPromoteProductivityGrowth15 E.Conclusion15 ANNEXES I.DataCoverageandSampleSelection19 II.DefinitionofVariablesandSummaryStatistics20References18 LABORPRODUCTIVITYDYNAMICSINSPAIN:AFIRM-LEVELPERSPECTIVE1 A.Introduction 1.Laborproductivityhasbeenalong-standingstructuralchallengeinSpain.Productivityperformancehasbeenweakacrossseveraldimensions:laborproductivitylevelsaresignificantlylowerthaninsomepeereconomies,itsgrowthratehasbeenlowandnotfavoredconvergence,anddifferencesinoutputperhourworkedacrossSpanishregionsisconsiderable(IMF,2018).Moreover,weaklaborproductivityperformancerelativetopeersholdsacrosssectors,suggestingthatcross-cuttingdriversarelikelytoplayamoresignificantrolethantheproductivestructureoftheeconomy. LaborProductivity (GDPinconst.2015pricesdividedbyhoursworked) 70 SpainGermanyFranceItaly EU LaborProductivityGrowthbySector1996-2021 (annualaveragegrowth;inpercent) PeerMedian 65 60 55 50 45 40 35 30 ESP Arts/Recreation Total4 2 0 -2 -4 Agriculture Pub. Adm/Health/… Industry(excl. const) Prof.Services Manufacturing RealEstate Construction 2000200320062009201220152018 2021 Financial Trade/Transp/Fo od/Accom Sources:Eurostat,HaverAnalytics,andIMFstaffcalculations. Info/Comm Note:peersincludeAT,BE,CZ,DE,FR,HR,IT,NL,PT,UK. LaborProductivityGrowth (annualgrowthrate,inpercent) 6 5 4 3 2 1 0 -1 -2 -3 -4 EU2725thto75thSpainEU27average 20002003200620092012201520182021 Sources:Eurostat,HaverAnalyticsandIMFstaffcalculations. 2.IntheaftermathoftheGlobalFinancialCrisis(GFC),laborproductivityinSpainexhibitedacounter-cyclicalpatterndrivenbythelargereductioninemployment.Therelativelystrongproductivitygrowthfrom2009to2013wasmainlydrivenbydevelopmentsinthelabormarket.Therapiddeclineinworkinghoursresultedinafasterincreaseinthecapital-laborratio.Additionally,employmentdestructionhadabiastowardslessproductiveoccupation,implyinganincreaseintheaverageproductivityforthosewhoremained occupied.Oncelabormarketconditionsnormalized,capitaldeepening2settledatalowercontributionlevel(negativein2014–19)tolaborproductivity,reflectingthelowerrateofcapitalaccumulationsincetheGFC.Theadoptionofmeasuresduringthepandemic,particularlywiththe 1PreparedbyNicolasArreguiandYuShi(bothEUR). 2Definedastheratioofcapitalservices(i.e.stockadjustedbyquality)overtotalhoursworked. 2INTERNATIONALMONETARYFUND roleplayedbythestrengthenedfurloughscheme(ERTE),resultedinbetterlabormarketdynamicsthaninpastcrises.Ontheflipside,laborproductivityperformedworseinSpainthaninothercountries. SpainLaborProductivityGrowthDecomposition (inpercent) CapitalDeepeningGrowth (inpercent) 5 4 3 2 1 0 -1 -2 LaborcompositioncontCapitaldeepeningcontTFPcont Total 12 10 8 6 4 2 0 -2 -4 -6 Hoursworked(denominator)Capitalservices(numerator)Total 19962000200420082012201619961999200220052008201120142017 Sources:KLEMsandIMFstaffcalculations.Sources:OECD,andIMFstaffcalculations. 3.Totalfactorproductivity(TFP)hasbeenconsistentlylowandlaggingpeersfordecades.Anumberoffa