Spain tops OECD unemployment while real wages fall since 2021

Spain doubles the OECD unemployment rate and has lost real wages since 2021

How can a country simultaneously have unemployment that is double the average of developed economies and wages that are falling in real terms? The latest OECD labour market report places Spain at the top of the unemployment rankings in the club of advanced economies, and among the three major ones where real pay — adjusted for inflation — has been falling since 2021, while in Eastern Europe, especially Hungary and Poland, wages are rising strongly. The analysts consulted see no contradiction: high unemployment and low wages are two sides of the same coin, and stagnant productivity prevents both from moving.

The vicious circle of high unemployment and low pay

With more labour available than the market can absorb, there is no reason for the price of human capital to rise. It is the most commonly cited theory: when unemployment is high, companies do not need to compete for workers and wages stagnate. That stagnation, in turn, discourages many unemployed people from looking for work and feeds the problem back on itself. The result is a labour market that fails to take off on either the supply or the demand side.

Productivity is the missing link. Without sustained improvements in efficiency, companies cannot pay more without losing competitiveness, and without decent wages there is no incentive to join the labour market. The OECD report does not examine the underlying causes, but the diagnosis matches the evidence: Spain has failed to converge in productivity with its European partners for years.

Employers who cannot find workers… at the wages they offer

The business complaint about labour shortages coexists with a stubborn reality: there are queues of candidates for jobs paying 900 euros with split shifts. The contradiction is not new. The argument is made that employers demand labour for positions they fail to fill with competitive wages, while the system maintains a pool of unemployed people that acts as wage discipline. Official statistics count as unemployed anyone working less than four hours a week, which inflates the unemployment figure but also reveals the precariousness of part-time work.

The debate over immigration as a solution or a problem crosses paths here. Part of the analysis holds that the arrival of workers willing to accept worse conditions pushes wages down in labour-intensive sectors. Another school of thought argues that immigration is necessary to sustain growth and pensions. The OECD data do not settle the dispute, but the fact that Spain leads in unemployment and falling wages suggests the model is not working for either side.

From construction to tourism: a model that does not pay

Spain's productive structure explains much of the problem. A model based on construction, tourism and low value-added services generates low-skilled jobs and moderate wages. The property bubble first, and the crisis afterwards, consolidated that specialisation. Now, with tourism at record highs and construction recovered, wages still fail to take off because the sectors driving employment are neither knowledge- nor technology-intensive.

Some argue that the public sector and grant-funded schemes have replaced industry as engines of employment. It is a simplification, but it points to a reality: the public sector and subsidised activities do not compete for talent with high wages, and their expansion does not pull the private sector along. Meanwhile, R&D investment remains below the European average and productivity fails to take off.

The tax burden that eats the payslip

More than half of what a company pays for a worker goes to the State through income tax and social security contributions. It is a calculation that circulates widely and explains why net pay does not grow even when labour costs do. On top of that comes VAT, which taxes consumption and reduces real purchasing power. The result is that the worker receives a small share of what they produce and the employer faces a high cost, leaving little room for wage increases.

The comparison with other European countries is not always favourable: in some partner countries the tax burden is similar, but public services and infrastructure work better. Here, the recurring complaint is that more taxes are paid while roads, trains and healthcare are maintained worse. The population has grown by 20% and taxes by 30%, according to a widely circulated calculation, without the quality of services improving in proportion.

What if Spain stopped being a developed country?

The provocation that Spain should change its status to that of a developing country reflects frustration with the data. It is not a serious hypothesis, but it is a symptom: the feeling that the official narrative does not match the reality of the labour market. The OECD does not classify Spain as underdeveloped, but its unemployment and wage figures distance it from the standards of its partners. The question is whether the current model can be corrected with reforms or whether a structural change that no government has tackled is needed.

Meanwhile, the data remain: unemployment double the average, wages losing purchasing power and stagnant productivity. Like a rocket that rises and falls without ever reaching orbit.