What is productivity, and why does Spain grow without gaining it?

Spain has been one of Europe's growth stories since the pandemic. The OECD's economists wrote in December 2025 that growth has been robust and faster than most euro area peers, carried by strong investment, rising services exports and a labour force that expanded quickly as migrants, mainly from Latin America, found work. Spain, they said, is creating jobs faster than most of Europe. Unemployment fell from around 15% in 2021 to 10.5% in September 2025, which is still the highest in the EU.

That's growth by volume: more people working, more hours worked. When Miriam González Durántez launched Democracia 21 in Madrid on 10 October 2026, one of the growth problems on her list was exactly this one. Spain has to grow through productivity, and through more than volume, if it wants to keep paying for its welfare state. We mapped the whole speech in our overview of Democracia 21's proposals. This piece explains what productivity is and what the data say about it.

What productivity measures

Labour productivity is what an economy produces divided by the labour it uses. You can divide by the number of people in work, which gives output per worker, or by the hours they actually put in, which gives output per hour worked. The second is the better measure of efficiency, because a country where people work longer days looks more productive per worker without producing anything more per hour. Eurostat publishes both, compared with the EU average set at 100. For Spain in 2025 the figure is 96.9 per person employed and 95.3 per hour worked, so the gap widens a little once you count hours.

Total factor productivity, or TFP, goes one step further. Output grows when you add workers and when you add capital: machines, equipment, buildings, roads. TFP is whatever growth is left once you account for both, and it reflects how well the two are combined. Fundación BBVA and Ivie, who run Spain's Observatory of Productivity and Competitiveness, describe it as the efficiency with which firms use labour and accumulated capital to create value. Technology lives there, and so do management, organisation and the rules firms work under. Over the long run it's the part of growth that lets wages rise without anyone working more.

What the Spanish data show

On Eurostat's series, Spanish output per hour stood exactly at the EU average in 2007. It slipped to 94.6 by 2019, fell to 90.7 in the pandemic year and has recovered to 95.3. Spain has created jobs at a fast pace in that time and produces a little less per hour, relative to its neighbours, than it did before the financial crisis.

The TFP numbers are starker. The observatory's first report, in January 2024, found that Spain's TFP fell 7.3% between 2000 and 2022, while it rose 15.5% in the United States and 11.8% in Germany. Labour productivity per hour grew 0.7% a year this century against 1.1% for the EU, and the productivity of capital fell 1.2% a year, largely because the property boom left buildings and assets that firms still under-use. Investment in intangibles, the software, data, design and know-how that make modern firms productive, stayed below the EU's, though it sped up from 2.6% a year before 2013 to 3.9% afterwards. The cost shows up in living standards: the gap between Spain's income per head and the EU-27's grew from 2.4% in 2000 to 14.4% in 2022.

The second report, in January 2025, had better news alongside the old problem. TFP in 2023 was at the same level as in 2013, a lost decade of efficiency, and yet it grew 2.71% in 2022 and 1.05% in 2023. The firm-level data are the most useful part. Productivity in a sample of more than 400,000 companies rose 6.7% between 2013 and 2022, and all of that came from the most productive firms winning market share; without that shift, the average would have fallen 7.8%. If the 40% of laggard firms in each sector reached their sector's median, aggregate productivity would rise 4.9%. Around 4,000 of the least productive firms are zombies, economically unviable and still alive.

The OECD adds the business structure. Small and medium-sized firms are 99% of Spanish companies and employ nearly two-thirds of the workforce, and they are smaller, grow more slowly and are much less productive than the best performers in the OECD. Its economists point to tighter financing, lower innovation, heavier regulatory and compliance burdens than in many European economies, and skills gaps. They recommend phasing in the regulatory thresholds that make compliance costs jump as a firm grows, and recognising migrants' qualifications faster, since many are overqualified for the jobs they do.

Why it matters, and the radical-centre reading

Mario Draghi's report on European competitiveness (September 2024) puts the same problem at continental scale. EU labour productivity climbed from 22% of the US level in 1945 to 95% in 1995 and has fallen back below 80%. By 2040 the EU workforce is projected to shrink by close to two million workers a year, so growth will have to lean on productivity. Keeping the average productivity growth of 0.7% a year since 2015 would only hold GDP flat until 2050. Draghi also makes the fiscal link explicit: a 2% rise in the level of TFP within ten years could cover up to a third of the public spending his investment plan needs. Ezra Klein and Derek Thompson's Abundance comes at it from the supply side, calling for a "supply-side liberalism" that builds more housing and energy and speeds up innovation, with an effective state doing its part.

Put together, the left has the purpose right. Productivity matters because it is what lets wages rise and pays for pensions, health and schools as the population ages, and the gains have to show up in pay packets. The market-liberal tradition has the mechanism right: productivity grows when better firms can expand, when capital flows to them, when competition pushes laggards to improve or close, and when rules stop punishing a company for hiring its fiftieth worker.

The idea that fits neither camp is about what we measure. Spain celebrates GDP growth and job creation, and both are real achievements. We would add GDP per hour worked as a headline target, reported every quarter next to total GDP, and ask every budget line and every new regulation to state its expected effect on it. A rule that protects workers and costs little in output per hour passes easily. A threshold that keeps firms small, or a subsidy that keeps zombies alive, would have to explain itself in public. Growth by volume has done Spain a lot of good, and the next stretch has to come per hour.