Spain's Productivity Handbrake
June 2025 (253 Words, 2 Minutes)
Spain has a ~30% productivity gap to countries like USA or Germany. Spaniards produce almost a third less value per hour worked than Americans or Germans. What makes such a large gap possible in an european economy?
Many factors sap Spanish output, but one stands out as both self‑inflicted and easily fixable: a regulatory wall at exactly 50 employees.
Productive companies generally try to grow in employees (Moral-Benito, 2018). But regulatory roadblocks can prevent that. With regulation the devil is in the details. And the way some of the Spanish regulation is designed might be particularly harmful.
Crossing 49 workers in Spain flips a switch that loads a firm with new legal duties: elect a works council and health‑and‑safety committee; negotiate a gender‑equality plan; reserve 2% of positions for disabled staff; stand up an internal whistle‑blower channel; and—since April 2025—file an LGTBI inclusion protocol. Fines can reach €1.000.000 (Ley del canal de denuncias).
Owners call it the maldición del empleado 50—the curse of employee 50. Some shelve expansion plans or split operations just to stay under the line.
The cliff shows up in hard data. Arruñada (2021) plots a spike at 49 employees and a dip just above. Only 0.6% of Spanish firms employ fifty or more workers, versus 2.5% in Germany and 6% in the United States (OECD, 2024). Put differently, the share of Spanish firms that break through the 50 employee cliff is one-quarter the German rate and one-tenth the U.S. rate. The gap is staggering.
This is tragic for two reasons.
- Resource misallocation: Capital and labour stick to tiny, low‑productivity firms instead of migrating toward better‑run, scale‑hungry ones.
- Stunted stars: Some high‑potential start‑ups either tread water below the threshold or migrate abroad.
In conclusion, Spain’s regulation meant to protect fairness also makes the country less productive and poorer. Other countries show it’s possible to protect workers without erecting regulatory cliff‑edges. One possibility is to remove and/or spread regulation across several (ideally higher) head‑count milestones.
Turning the single 50‑employee cliff into a gentler slope would remove a quiet but persistent drag on growth. Until that happens, Spain will continue to drive with the productivity handbrake partially engaged.
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