Update: Wow, sensitive topic, judging by the emails I received commenting about these statistics. Some very good points raised by readers, whose mood generally ranged from circumspect to downright pessimistic about Spain’s economic prospects.

- Spain’s population has boomed from 40 to 45 million in the time period in question, all due to immigration. So a large, maybe entire, portion of additional hours worked has come from this raw increase in labor inputs. Very true…
- Much of the sector growth has come in low-productivity services such as construction & tourism, even as higher productivity manufacturing has been shrinking. Also very true…

Yet these points don’t disprove the problem. They merely explain it. Increasing your country’s output by increasing input (just add people!) is a 3rd world strategy- first, get everybody a job. But it doesn’t actually make anybody wealthier.

Real wealth comes from only one place: productivity. If you aren’t increasing your output per unit input, you are not becoming wealthier. Period. It’s mathematical.

The things that have made Spaniards wealthy this decade are unfortunately not very solid. All the EU funds invested in Spain every year are not creating wealth, but simply transferring it from the rest of the EU to here. Similarly, money made from booming house prices is not weath created, but rather transferred from future home owners to current ones.
So yes, we can explain that declines in productivity are affected by one-time immigration booms, or transitions to alternative sectors. But the trend should still be a huge concern to all of us here in Spain.

** end of update! **
From the latest Economist, a pretty amazing statistic:

Spain’s economic growth stems from industriousness, not ingenuity, according to a study by the Conference Board. Total hours worked rose by an annual average of 3.8% in 2000-05. Labour productivity, or output per hour, fell by an annual average of 0.6%. By contrast, Ireland’s growth came from both sources, with labour productivity rising by an annual average of 3.0% and hours worked increasing by an average of 2.2%.

This is the great chimera of economic growth. All growth boils down to two things: increasing units of input (more people, more hours worked, etc.), and increasing units of output per unit of input (productivity- getting more done).

I think it’s fine for countries like China to grow first with increased inputs, but wholly unacceptable for country like Spain to depend on this. Increasing hours worked isn’t exactly a long-term, sustainable strategy for growth.

Maybe more scandalous is that productivity in Spain has been decreasing every year for almost a decade! In peacetime, during an era with the most productivity-enhancing tools ever known to man (computing power, mobile phones, internet, etc.)- for Spain to be unable to increase its productivity is scary.

This nifty graph is also provided: