Wages and labor productivity in Spain: reflections from a historical political economy perspective

Abstract

This article investigates the dynamic relationship between wages and labor productivity in Spain from 1995 to 2024. While wages are assumed to evolve in line with labor productivity, empirical evidence suggests a decoupling between the two variables. We identify two distinct regimes in Spain: one characterized by a positive association between wages and productivity, and another marked by decoupling. We also observe that changes in these regimes coincide with changes in political leadership in the country: periods of center-left governance (PSOE) coincide with a certain wage-productivity alignment, while right-wing administrations (PP) tend to coincide with a wage-productivity decoupling. This highlights the political nature of wage-setting dynamics and challenges the view that wage stagnation is solely a consequence of weak productivity growth. We argue that political institutions and policy decisions might play a critical role in shaping the functional distribution of income.