Structural change and the Spanish productivity paradox

Abstract This paper analyzes the countercyclical nature of productivity in Spain from 1995 to 2018, focusing on the role of structural changes and the manufacturing sector’s contribution. Using the subsystems approach, we employ total labor productivity (TLP) as an alternative productivity indicator. Unlike conventional measures, TLP incorporates all inputs and intersectoral dependencies, providing a more comprehensive perspective on productivity dynamics. Our findings reveal that Spain's aggregate productivity paradox is driven by the expansion and contraction of low-productivity sectors, which contributed negatively to productivity during periods of economic growth and positively during recessions due to significant job losses. Additionally, the deceleration of manufacturing productivity is attributed to extensive outsourcing to less productive sectors. Manufacturing does not exhibit countercyclical productivity trends, and its productivity growth has slowed since the Great Recession. This analysis offers valuable insights into the Spanish economy’s productive specialization and productivity evolution, with implications for broader economic development processes.