The OECD’s Productivity Review of Spain: Continued support for social dialogue and worker representation is necessary to revive broadly shared productivity growth

In a new publication, jointly released today with Spain’s Second Vice-President and Minister of Labour and Social Economy Yolanda Díaz Pérez, the OECD takes a closer look at the twin challenges that Spain is confronting: how to revive productivity growth and ensure that it is broadly shared? The OECD’s key recommendation is to continue to support the efforts of social partners, to reach broad agreements that prepare the labour market for future challenges.

Spain has not only been experiencing a slowdown in productivity growth over the past decades; as in many other OECD economies, real wages also failed to keep up with diminishing productivity growth. This resulted in real wages falling and a declining labour income share.

Besides highlighting the failure of the majority of firms (95%) to improve productivity, compared to the 5% which did perform well, the report also points to extraordinarily weak investment dampening the stock of productive capital in the wake of the global financial crisis. This in turn casts doubts on the 2012 labour market reform, which, it was hoped, would support investment and productivity growth by providing more scope for negotiation at the firm-level.

At the same time, the OECD is concerned that the 2012 reforms have undermined the bargaining position of trade unions at the sectoral level, thus contributing to the decoupling of wage growth from productivity growth.

More recent labour market reforms, based on broad agreements reached by social partners, show promising results and the OECD recommends that these be continued and promoted:

• Raising minimum wages from 40% of the median wage in 2018, to 50% in 2019 and 59% in 2022 significantly increased the remuneration of low-wage workers without any significant job losses, while also incentivising employers to use more stable employment contracts, which allow for a more experienced and productive work force.
• The 2021 labour market reform considerably strengthened sectoral collective bargaining and the bargaining position of trade unions. This is a reform that the OECD considers necessary to coordinate wage agreements across sectors and forge agreement between social partners on further reforms that prepare for future challenges. The OECD recommends continuing such social dialogue at the national level, while also promoting worker representation at the firm level, particularly in smaller firms.
• The 2021 labour market reform also introduced the legal principle that open-ended employment contracts should become the rule and fixed-term contracts the exception. By abolishing these extremely flexible and widely used ‘contracts for work and service’, and by strengthening the justification for using fixed-term contracts, the incidence of fixed-term contracts fell sharply, from more than 20% in 2021 to 15 % in 2023. The number of open-ended contracts also expanded in parallel.
• Finally, the OECD finds that the wide use of job retention schemes after the outbreak of the pandemic saved many jobs and prevented a massive increase in unemployment. Again because of the 2021 labour market reform, Spain is now one of the few OECD economies with an explicit framework for scaling up the use of job retention schemes in times of exceptional need.