| Summary: | This Selected Issues paper focuses on labor productivity dynamics in Spain. Labor productivity has been a long-standing structural challenge in Spain. Productivity performance has been weak across several dimensions: labor productivity levels are significantly lower than in some peer economies, its growth rate has been low and not favored convergence, and differences in output per hour worked across Spanish regions is considerable. In the aftermath of the Global Financial Crisis, labor productivity in Spain exhibited a counter-cyclical pattern driven by the large reduction in employment. Total factor productivity (TFP) has been consistently low and lagging peers for decades. Sustained policy focus on raising productivity will be important to increase living standards, help rebuild fiscal buffers and make growth more inclusive. The empirical analysis benefits from the rich information in firm financial statements to provide a deep-dive study on differences across firms based on their size and age. Firm-level characteristics, such as balance sheet health and growth potentials, have also shown to be significant determinants for firm investment
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