Spain’s income gap with the most advanced OECD economies has recently narrowed, supported by resilient and steady GDP growth in the last years. Productivity growth, while still moderate, has improved and overall investment strengthened in recent years after a decade of weakness. Labour market performance has also advanced significantly, with declining yet still high unemployment rates. Significant reforms in recent years had led to strong job creation, even though employment rates remain well below those of peer countries.
Spain has shown a positive performance in hourly labour productivity since 2022, along with strong job creation, yet it still maintains a significant gap with the Euro Area and top OECD countries. Higher productivity growth and addressing population ageing require a flexible labour market and a dynamic business sector. Higher investment in research and development could accelerate innovation and productivity gains. Promoting a flexible and targeted adult learning system would help early school leavers and adults improve their skills and expand their employment options. Broadening the VAT tax base and reducing high marginal effective tax rates for low-income earners can make the system more efficient and improve incentives to work.
