17/11/2014
As already mentioned, the external sector of the Spanish economy has recovered during the crisis, but unlike what happened in previous crises, in this case it has not been the result of competitive devaluations undertaken by the Government. The competitiveness gains observed are due other factors, including the positive behaviour of labour productivity.
A higher productivity, regardless of the reason driving it, and as long as it doesn't entail wage increases, reduces production costs. If companies choose to keep their mark-up, the growth of sales prices will be contained or even reduced, which will help us become more competitive internationally and therefore, we would sell our products abroad more easily.
A quick overview of the data in the table below allows us to say that, unlike what has happened in most of our neighbouring countries, the economic crisis has led to the recovery of labour productivity which, from having an average annual growth (-0.04%) in the period 2001-2007, has increased its mark to (2.18%) from 2008. Meanwhile, in other countries in the EU-15 –with the exception of Ireland and Portugal– the average rate of labour productivity growth is slowing down, often going from positive growth rates to negative ones during the crisis.
On the other hand, if we focus on the analysis of what's happening in the different economic sectors, we should mention that the situation, with more or less intensity, and with the exception of the primary sector, is a replica of what's happening globally. The Spanish, Irish and Portuguese productivity is accelerated by the crisis, especially in the sectors of construction and services, contrary to what is happening in other countries.
The fact that labour productivity has improved during the crisis is something nobody questions. However, one must ask what reasons lie behind this improvement. Theoretically, this improvement can be based on two facts. Firstly, in technological advances and increases in the quality of production factors, which will result in long-lasting increases in productivity over time. Secondly, in the massive job losses, in which case productivity growth will be sustainable only while employment does not recover.
At this point we must offer an answer to the following question: is it possible to maintain the long-term productivity growth generated with the onset of the crisis? In this sense, and since the crisis began, employment has contributed positively to productivity growth. Thus the destruction of jobs, rather than the growth of production, support production increases.
Contribution to overall productivity growth in the Spanish economy*
*The variation of employment has changed sign to better see its contribution to productivity growth. The destruction (creation) of employment is reflected in the graph with positive changes (negative). Source: Eurostat (2014)
But, why has Spain destroyed so much employment? The reason lies in our production structure, based on intensive sectors of low-skilled labour, which have been particularly affected by the crisis. This highlights the high weight of the construction sector, which in 2007 represented about 13.5%, both in terms of production and employment, and which has come to lose nearly 8 points in terms of production and 5 points in terms of employment. Added to this are real estate services and activities related to leisure and catering, which are closely related to tourism, and whose weight in production was 6.5% and 27% respectively before crisis. In addition, the industrial sector, even though it has less relevance than in other European countries, is also an industry that employs a lot of labour with minimal training and, given the scarcity of financing and foreign investment, has also suffered from the crisis.
It is thus hardly surprising that productivity is growing in the construction and industrial sectors, given their high job losses. But it is the services sector which deserves special attention, because the variation experienced in the average rate of productivity growth of more than 2 points is the result of both the loss of jobs and the increase in production.
Decomposition of productivity growth in the Spanish economy by sector
Source: Eurostat (2014)
From what has been said it can be concluded that, if no other arguments can be found to support the increased competitiveness of the Spanish economy, then the positive results witnessed in our external sector have only been a short-term mirage. It is for that reason that we must ask ourselves what has happened to the behaviour of total factor productivity, which is maintained over time, and whether there are other elements supporting the competitiveness of the Spanish economy.