First it was productivity and now it is employment. The distance between rich and poor autonomous communities has narrowed in the last 60 years, but this reduction has lost traction in recent years. Whereas in 1955 the great divergence of per capita income was due to high productivity differentials (some highly industrialized communities and others agrarian), today what is employment. The higher employment rate in the ‘richer’ regions allows per capita income (distributing total production among the inhabitants) to remain significantly higher than in regions with a lower employment rate. Visually, a four-person household in which all four are working will probably present a higher income per person than a household in which only one of the four members works.
In 1955, the region with the highest per capita income was the Basque Country, followed by Madrid, Catalonia and Navarra, while the poorest were Extremadura, Galicia, Castilla-La Mancha and the Canary Islands. “Sixty-three years later, the regions that occupy the extremes of the income ranking remain largely the same, although with some novelties and small changes in their order,” highlights the latest work by Fedea, The territorial dynamics of the income in Spain, 1955-2018.
For example, the Community of Madrid has displaced the Basque Country from the first position and Andalusia has replaced Galicia in the penultimate place. On the other hand, the distance between the two extremes of the distribution has narrowed appreciably: the difference in relative income between the richest region and the poorest has fallen by half, from more than 124 points in 1955 (between Extremadura and the Basque Country) to 63 in 2018 (between Extremadura and Madrid). Being 100% the national average, the Community of Madrid presents a per capita income that represents 136.2% of the national average, while that of Melilla is 72% and that of Extremadura 73%, the two regions being more country’s poor.
However, it can be seen that the initially poorest communities have improved their relative situation during the period while the richest have generally lost ground, which has tended to bring both groups closer to the average, flattening the distribution line. “We can speak, therefore, of a process of regional convergence or reduction of disparities in income per inhabitant”, points out Ángel de la Fuente, author of the work and director of Fedea. The greatest reduction in this ‘gap’ or gap occurred between 1961 and 1973, while later there was a moderation that ended in decline during the crisis (2008-2013 period).
Why the difference in per capita income?
The work is based on a simple decomposition of the regional relative per capita income into three components: a demographic one, linked to the weight of the working-age population in the total population, another employment one, which reflects the employment rate of this group, and a third of productivity and prices, which is generated through the average income per employed worker. Using this breakdown, the author calculates the contribution of each of these factors to the differences in income per inhabitant between autonomous communities and to the process of interregional convergence in the same variable.
Among the most striking results of the study, it is worth highlighting the increasing weight that the employment factor has been acquiring as a source of the differences in income per inhabitant between the autonomous communities. While regional productivities have converged at a good pace in the period analyzed, the employment or employment rates of the poorest regions have fallen in relative terms, making it difficult for them to move towards income levels close to the national average and slowing down the convergence process. This brings us back to the initial example of the household and the members who are working. It is easier to obtain a higher per capita income the higher the employment rate, which is the ratio between the total employed and the population aged 16 to 64.
The southern convergence appears to have stalled. Its per capita income was close to the average until 1975 or 1980 to stabilize after about 25 points below the national average. For its part, “the northwest maintains a pattern of smooth upward convergence throughout the period, although with certain ups and downs, and the Ebro-Levante region a certain downward trend, also with oscillations. Finally, the insular communities present a clear upward trend until the turn of the century, which leads them to exceed the national average, but they again lose ground at a good rate during the final part of the period,” the report states.
However, territorial income inequality has ceased to be a problem almost exclusively of productivity to become a problem fundamentally of employment. “The bulk of the slowdown in the convergence process observed from the 1970s onwards comes from the occupation component of per capita income, which shows a divergent behavior for a good part of the period, showing a worse performance in lower-income regions” , highlights the document.
The employment rate in Extremadura or Andalusia is similar to that observed in Greece
The data shown by the National Institute of Statistics for the fourth quarter of 2019 show these divergences. While in the Community of Madrid the employment rate is 71.2%, at levels that even exceed the average for the euro zone, while in Extremadura or Andalusia it is around 55%, levels that are below Greece.
The precariousness of employment
The productive structure of each region may be behind these huge differences in the labor market. For example, the BBVA Foundation and the IVIE presented . The analysis of the temporary rate shows important differences. Thus, in 2018 the lowest temporary employment rate (below 20% but far from 14.2% in the EU) was observed in Madrid. They are followed, below 25%, by Catalonia, Navarra and Asturias. At the opposite extreme are Andalucía and Extremadura, both above 35% and with rates 2.5 times higher than the EU average and almost 16 percentage points above Madrid. The communities located in the southern and southeastern half, along with the islands, show temporary rates above the national average.
A key factor that could be determining these differences is the weight of agriculture in employment. According to data from the National Institute of Statistics, 9.8% of employed Andalusians work in agriculture, while in Extremadura it is 13.8% and in Murcia 13.1%. Agriculture and construction are usually the sectors that present a more intensive use of temporary employment due to the particular characteristics of these two branches of activity. In the case of Murcia and Andalusia, the contribution of tourism could also be added, another sector where seasonality is more common, especially in the southern and eastern peninsular regions.
These regions with the lowest employment rate tend to coincide in some variables, in all of them activities with low productivity and little job creation have a greater relative weight, such as agriculture and some branches of industry and services with low added value. They also tend to have a weak business fabric with small firms, on many occasions they do not have any wage earner.
they may have to do with the still notable per capita income gap. In turn, a higher rate of temporary employment can also weigh on the employment rate and productivity. Even so, Ángel de la Fuente once again puts the accent on the employment rate and ends his work noting that “as a result, territorial income inequality has ceased to be a problem almost exclusively of productivity to become a problem fundamentally of employment”.
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