The recovery of productivity in Spain: is it sustainable? Session 1d - cardoso... · 2 The recovery of productivity in Spain: is it sustainable? Main messages 1 2 3 Productivity growth

The recovery of productivity in Spain: is itsustainable?Miguel Cardoso

BBVA Research │Head Economist, Spain

2

The recovery of productivity in Spain: is it sustainable?

Main messages

1

2

3

Productivity growth has been low in Spain as growth came through factor accumulation

Literature points towards several key factors to explain this, from the sector allocation of resources, to labor market regulation, to lack of competition.

Recent trends are due to temporary factors, but reforms might insure that mostof the gains are permanent

3


Presentation is a summary of several papers

1

2

3

Cardoso M. and J.L. Escrivá (2009), Reflexiones sobre los sectores de futuro en la economía española. Cuadernos de Información Económica, núm. 219, Noviembre-Diciembre 2010, p. 41-52.

Cardoso M. (2012), 25 años de crecimiento económico, ¿toca ahora austeridad?, Desapalancamiento y Crecimiento (Forthcoming)

Cardoso M., R. Doménech y J.R. García (2012), The effects of the labor marketreform in Spain, in Spain Economic Watch, February 2012.

4


Two significant shocks

Spain: Synthetic real interest rate (ex-post) on credit transactionsSource: BBVA Research

Spain and EMU: working age population (contribution to GDP growth)Source: BBVA Research

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990-1999 2000-2009 2010-2020

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1991-2000 2001-2010 2011-2020

EMU Spain

5


Growth accounting shows low productivity growth,…

In the period previous to the crisis there were twoshocks: historically cheap credit and significant

immigration flows

Growth was explained by factor accumulation(capital and labor), and not by productivity increases

Factor accumulationSpain: Potential GDP (contribution % yoy)Source: BBVA Research

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

1991-2000 2001-2010

Capital Labor Productivity

6


…, and lack of convergence

Spain: Productivity growth (1995=100)Source: BBVA Research

90

100

110

120

130

EE.UU. RU ALE FR

UE15 ESP ITA

Not only was productivity growth historically low, itwas also low by international standards

This is normally viewed as one of the reasons behindthe accumulation of imbalances in countries like

Spain or Italy

International comparison

7


Domestic Investment Rate (GFCF as percentage of GDP)Source: BBVA Research based on INE and AMECO

Investment share of GDP (%)Source: BBVA Research

HousingOther

Construction

Capital goods and

othersTotal

investment

1997 4.7 6.8 10.3 21.8

2007 9.2 8.6 12.9 30.7

Var (97-07) 4.5 1.8 2.5 8.9

2010 4.7 8.1 9.7 22.5

Var (07-10) -4.5 -0.6 -3.1 -8.2

10

14

18

23

27

31

35

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(f)

2012

(f)

EMU16 Greece Spain Portugal

Causes of low productivity growth: 1. A reliance on low productivity sectors

8



At the peak, a third of investment flows wenttowards the residential construction sector

Productivity growth of residential sector lies in partat the bottom of explaining low productivity in Spain

9


Lack of investment in R&DHuman capital and R&DSource: BBVA Research based on OCDE

Human capital and R&D activities are deeply correlated. Human capital is the basic input of R&D

activities

Coordination of national and European policies to favour innovation in areas in which each country has

its own comparative advantage

Again, huge differences in R&D investment across European countries

US

UK

SP

PT

JP

IT IR

GR

GER

FR

FIN

DEN

CAN

BEL

R2 = 0,7984

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

0 2 4 6 8 10 12 14 16 18

Investigadores por cada mil empleados en 2007

Gas

to to

tal e

n I+

D (%

del

PIB

) en

200

7

Number of researchers per 1,000 workers, 2007

R&

D in

vest

men

t ove

r G

DP (

%),

2007


10


Temporary employment rate vs unemployment rate Source: BBVA Research based on Eurostat

Causes of low productivity growth:2. An overreliance on temporary workers

.

EA12

Bel

Bul

CRep

Den

Ger

Ire

Gre

Spa

FraIta

NetAus

Por

FinSwe

UK

Nor

0

5

10

15

20

25

0 5 10 15 20 25 30 35

Percentage of employees with temporary contracts (2007)

Un

emp

loym

ent r

ate

(20

11)

The temporary work share in Spain is the highest in the OECD

It also means an overreliance on them to do adjustments

Negative effects on productivity due to a) reduced company training, b) lower geographic mobility, c)

lower rotation of workers

11


Causes of low productivity growth: 3. A rigid labor market and lack of competition

Inflation Accounting. Euro Area-12 Based on GDP Deflator, 1999-2011 (contributions to change) (annual average growth rates in percentage)Source: BBVA Research based on AMECO

Total Wages Productivity Markup TaxesEA-12 1.71 1.14 0.31 0.68 0.20

Germany -0.93 -0.47 0.10 -0.38 0.01France -0.04 0.23 0.02 -0.21 -0.04Ireland 0.30 0.38 0.38 0.29 0.01Italy 0.41 -0.07 -0.29 0.17 0.01Portugal 0.73 0.42 -0.07 0.09 0.15Greece 1.33 0.12 -0.10 0.94 0.17Spain 1.28 0.39 0.00 0.83 0.06

Deviation from EA-12 average

Most of competitiveness losses in Spain did notcome from productivity losses, but from higher

wages and markups

A rigid wage setting system

Lack of exposure to competition, both inside and outside

12


Spain: real labour compensation vs labour productivity. Annual growth distribution(21 industries, 25 years)Source: BBVA Research based on EU KLEMSBBVA Research based on INE

-12

-8

-4

0

4

8

12

-12 -8 -4 0 4 8 12

Real productivity growth per employee (%)

Rea

l lab

or

com

pen

sati

on

g

row

th p

er e

mp

loye

e (%

)

.

A very low share of workers’s working conditions are covered by firm agreements (15%)

Wage determination is centralized but very few are unionized

Internal factors do not weigh enough on salaryconditions, preventing efficiency during crisis


Lack of flexibility for firms

13


Regulation and productivity growth in retail tradeAverage 1995-2007

Regulation and productivity growth in professional servicesAverage 1995-2007


14


Only 12% of Spanish firms exported goods and 9% services not related to tourism over the period 2001-

2011

The productivity threshold to be able to export isconsiderably above the average of the sector

Behind the low percentage of exporting firms lies a self selection effect

A notable degree of concentration: the 1% of firmswith higher export volume represents around 70% of

all exports (UK, France: 40%, Italy 30%)

Lack of external competition


Proportion of exports accounted for top exporters(%)Source: BBVA Research based on Bank of Spain and Meyer and Ottaviano

0

10

20

30

40

50

60

70

80

90

100

Spain France U.K. Italy Germany

Top 1% Top 5% Top 10%

Note: Germany, France, UK, and Italy data are for 2003; Spain

15


Company size and productivity(Correlation: 0.7)Source: BBVA Research

AUS

AUS

BEL

GER

DINSPAFIN

FRA

U.K.

GRE

IRL

ITAJAP

NTH

NZL

POR

SWE

US

45

50

55

60

65

70

75

80

85

90

95

100

105

5 10 15 20 25 30 35 40

Labour productivity per hour worked in 2008 (U.S..=100)

Employment in companies under 20 employees (%, 2006)

Causes of low productivity growth: 4. Lack of size

Productivity is low in small firms, which account for a large part of employment and output

Other determinants of productivity seem to be correlated with size

Economies of scale seem to be important in some sectors, and to export

16


Productivity is low in small firms, which account for a large part of employment and output

Other determinants of productivity seem to be correlated with size

Economies of scale seem to be important in some sectors, and to export

Features of exporting firms in comparison with non-exporting firms in the yearManufacturing. Ratio of medians, average 1990-2010Source: BBVA Research based on ESEE, Fundación SEPI

0 1 2 3 4 5 6 7 8 9 10

R&D and technology adoption*

Foreign capital participation*

Size

Real K stock per employee

Real productivity per employee

Share of high-skilled labour*

Market share in main market*

Share of white-collar workers

Average real cost of debt

Temporary employment rate

Bank debt over own funds

Note: Pool of total observations. * Ratio of means of the corresponding distribution.

40

Causes of low productivity growth: 4. Lack of size

17


Human capital is one of the main determinants of GDP per working-age population and other

economic variables (U, R&D, etc.)

Increasing human capital levels in some countries will be a very slow process (demographics) -> on-

the-job training (labour markets reforms)

Huge differences among European countries

Schooling of adult population and GDP per WAPSource: de la Fuente and Doménech (2012)

DEU

FRA ITA

ESP GRC

PRT

IRL

BEL AUT

FIN

NLD SWE

DNK

GBR

USA R² = 0.81768

10.4

10.5

10.6

10.7

10.8

10.9

11.0

11.1

11.2

11.3

7 8 9 10 11 12 13 14

GD

Pper

WA

P,201

1(in

logs)

Years of schooling of adult population, 2010

Causes of low productivity growth: 5. Human capital

18


Spanish productivity vs European average (GDP per worker)Included countries: Austria, Finland, France, Germany,Greece, Ireland, Italy, Netherlands, Portugal, Spain & United Kingdom

Productivity has increased substantially over the crisis

Productivity has increased substantially over the crisis

Spain is where productivity has increased themost in Europe

Spain is where productivity has increased themost in Europe

Most of the adjustment has come from jobdestruction

Most of the adjustment has come from jobdestruction

Nonetheless, productivity has gone up after the crisis

90

92

94

96

98

100

102

104

106

108

110

2008

2009

2010

2011

Max Spain

19


Spain: economic growth and breakdown of difference in number of hours worked (cumulative change 2007-09, %)Source: BBVA Research based on INE and EC data

GDP (-4%)

2

1

0

-1

-2

-3

-4

-5

-6

-7

-8

Employment Average working day in the year

Total hours GDP

Germany Spain

GDP (-3%)

This might be the result of non efficient ways to adapt

Spain: Contributions to employment growth by type of contract ( % YoY)Source: BBVA Research based on INE

-8

-6

-4

-2

0

2

4

6

8

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Rest of employed Employees with permanent contracts

Employees with temporary contracts Total

20


Composition and growth of real exports by product(average 2010-2012 (% yoy)Surce: BBVA Research from MINECO

Recovery has been strong,…

…, and diversified enough.

Surprising export growth

-7

-2

3

8

13

18

23

28

33

38

0 10 20 30 40

Annual

aver

age

real

gro

wth

Share in total exports

Oil refining, electronic components,others

Electric engines, chemical products,Beverages, others

Basic chemistry, mechanicalEquipment, textiles

Agriculture, other machinery

Motor vehicles, pharmaceuticals

Furniture, Motorcycles

But there are reasons to think some is permanent

21


Spain: response to labour market reform (% deviation from trend)Source: BBVA Research

Labor market reform simulation in REMS

REMS is a DGE of a small open economy within a monetary union, calibrated to fit moments of

Spanish economy

REMS is a DGE of a small open economy within a monetary union, calibrated to fit moments of

Spanish economy

Key features of reform: lower dismissal costs, reduce negotiating power of unions, better active

labor market policies

Key features of reform: lower dismissal costs, reduce negotiating power of unions, better active

labor market policies

The model delivers on impact a strong improvement in productivity

The model delivers on impact a strong improvement in productivity

-2

0

2

4

6

8

10

12

14

16

18

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

GDP Employment

But there are reasons to think some is permanent

22


Main messages

1

2

3

Productivity growth has been low in Spain as growth came through factor accumulation

Literature points towards several key factors to explain this, from the sector allocation of resources, to labor market regulation, to lack of competition.

Recent trends are due to temporary factors, but reforms might insure that mostof the gains are permanent

23


The recovery of productivity in Spain: is itsustainable?Miguel Cardoso

BBVA Research │Head Economist, Spain

Documents

The recovery of productivity in Spain: is it sustainable? Session 1d - cardoso... · 2 The recovery of productivity in Spain: is it sustainable? Main messages 1 2 3 Productivity growth