Why are employment and tax collection skyrocketing if GDP does not take off?

National accounting, in job creation and tax collection, has recovered pre-pandemic levels; However, the same does not happen with the GDP growth statistics, which casts doubts on the measurement methodology.

"The latest 'macro' data is like a Scottish shower: if you look at growth data, you get one face; and if you look at job creation and tax collection, you get another." This is how an expert in national accounting explains how difficult it is to evaluate the situation of the Spanish economy.

It is not just a matter of seeing how much the Gross Domestic Product (GDP) grows and if the Government's forecasts are going to be fulfilled or if there are international organizations that indicate that we must step on the brakes with the estimates and not throw the bells flying. The background goes a step further and questions and hypotheses fly over as to whether the National Statistics Institute (INE) is measuring GDP well and why data on job creation, Social Security affiliations and tax collection are not seen reflected in the growth data.

Regarding job creation, Spain has returned to the pre-pandemic figures, with historical data in employment figures and with 61,768 more affiliated workers in November, on average, the highest figure in the historical series. Regarding tax revenues, until October, they soared by 16.3%.

In contrast, the GDP data is not nearly as optimistic. Not only have they not recovered pre-pandemic levels, but they are still more than 6% below the growth that was achieved before the outbreak of the coronavirus.

Mismatched indicators

"My impression is that there is a problem with the measurement of GDP," an expert in national accounting explains to elDiario.es. "It is a system of indicators, published by different sources and, right now, everyone sees that there is out-of-balance data," he points out. "The hypothesis, from the outside, is that when the confinement began, the indicators did not have the same meaning, for example, the numbers of hours worked. The INE focused on some of those indicators and the measurement of GDP was out of adjustment. Now, with the return to normality, it has not been readjusted ", he sums up.

Doubts about whether growth was being measured well arose a few weeks ago, when the INE revised its own estimates of GDP for the second quarter of the year. On July 30, it assured that it had grown at a rate of 2.8%. On the other hand, two months later, he affirmed that, in that quarter, only 1.1% had advanced. A review never seen before, as indicated by the economist and statistician, Francisco Melis.

The latest data, that of the third quarter, advanced by the INE, indicates that Spain grew between June and September at a rate of 2% (2.7% year-on-year). But that data is not the end, since the final will not be known until next December 23 and, different sources, indicate that these figures are going to be revised upwards.

Comparison of GDP growth, employment and taxes

Last week, the INE convened a meeting of the Economic Situation Analysts Group (GACE) where, precisely, the measurement of the economic situation was discussed.

"The INE has not said that GDP growth will be revised upwards. What it commented to analysts at the November meeting is that the indicators known and published from the close of the GDP advance data to the date of said meeting showed, in general, a more favorable behavior than those available in the advance ", indicate from the National Institute of Statistics. And as for the meeting, they assure that it was "an informal information session called by the INE to exchange opinions with analysts and clarify their methodological doubts about the figures published in recent quarters, in a context of complex economic analysis due to the pandemic".

Has data been missing?

"What happens in 2021 is that the economy makes an inflection and the indicators diverge in signs, because there are temporary delays," explains Gregorio Izquierdo, general director of the Institute for Economic Studies (IEE), the CEOE employers' research service. "There are no complete data because not all investment and foreign sector data were available in the GDP advance data, there were employment and private consumption indicators. But when you incorporate everything, it had to be reviewed," he summarizes.

"The Spanish case is peculiar because the GDP data do not fully agree with alternative indicators that tend to go quite hand in hand, such as revenue or employment," says Ángel Talavera, an economist at Oxford Economics. "Right now in Europe we have no other example where the same thing happens. In any case, the dynamics between countries can be very different for reasons, for example, of having different economic structures, without necessarily having to mean measurement errors," he clarifies .

The INE explains that, in each quarter, the GDP data from previous periods are updated as new baseline information or revisions are incorporated. "In the data of the advance of the second quarter, published on July 30, most of the indicators on the economic evolution offered results until the second month." That is, May. From there, fonts are added. "The results published on September 23 already incorporated the updated information of all the statistical indicators on the economic evolution," he clarifies. "This review was particularly influenced by the update of the information on sales of large companies and SMEs."

The INE also justifies that "the economic effects of the pandemic and the impact on statistical activity and on the economic situation of the measures adopted to combat its effects are posing an unprecedented challenge for statistics. And this is causing the revisions to be greater than those that occur in other situations. "

More employment but less productive?

Either due to the pandemic or the measurement model, the employment data - Spain has exceeded 19.7 million affiliates - without accompanying growth, may be signaling a slowdown in productivity, that there are more people employed but producing less . And again, there is no one way to look at it.

At what level is each indicator over 2019?

"The INE data for the second and third quarters indicate a drop in worker productivity," says Miguel Cardoso, Chief Economist for Spain at BBVA Research. "Since 2010, the relationship between hours worked and GDP has been relatively constant: for every 1% increase in the first, we see an increase of 1% in the second," he lists. "However, in the second quarter of the year, hours worked increased by 4%, while GDP barely advanced 1%. In the third quarter the situation has reversed somewhat, but not completely. Hours worked have advanced around 5.5%, while GDP only 3%. This implies a reduction in productivity per hour worked of 2.5% ".

And what are the reasons? "The reasons behind the above could be several. The first, given the reduction in tax incentives associated with ERTE, companies have had to prematurely reinstate their workers even though demand had not recovered. For example, hotels They could not be at full capacity in some months due to the low influx of foreigners, "says Cardoso.

"A second explanation is that, although there is demand, there are no inputs to produce. This may be happening in industrial sectors, where workers may be underutilized due to the lack of intermediate goods due to the disruption of global value chains. "In other words, due to bottlenecks in world transport and the lack of microchips, among others. "Additionally, there could be a 'composition effect': new workers are not as productive as those already hired. Finally, teleworking may have had something to do with it as well, to the extent that people are less productive at home ", indicates the Chief Economist for Spain at BBVA Research.

Teleworking, then, would not be as productive. María Jesús Fernández, a senior economist at Funcas, doesn't see it the same way. "It may be that workers who telecommute declare more hours than they do, but the population that telework is a minority. And it may be that some sectors, such as the hospitality industry, have recovered employment, are open but without customers. And there may be divergences in the construction data, because there are works stopped and they are figures in which there may be delays. But these reasons only explain part of the divergence ", says the economist of the think tank, dedicated to economic and social research. "It suits me more that GDP is being underestimated," she concludes.

Back with the black economy

The evolution of GDP and employment, according to the experts consulted, has more derivatives. One of them, that in these months 'submerged' jobs are emerging during confinement or, even, before. "The membership data is going very well and may be reflecting a normalization of the underground economy, which is declining after the pandemic," argues Gregorio Izquierdo, general director of the IEE.

"It is true that the underground economy may be emerging, because there are efforts by the labor inspection and conversion of contracts. That is a way to increase employment, but it is almost evident that this cannot be the only explanation," says Carlos Victoria , Research Economist at EsadeEcPol. Two other explanations would pass, he adds, because the employment measurement data would not reflect well the reality of the labor market; and the aforementioned bottlenecks in supply chains, which would be modifying production towards local demand.

"That the underground economy is emerging would be one of the explanations that would help to fit the reason why employment is growing more than GDP, if what we are seeing is indeed employment that was already there but was not registered," assumes Ángel Talavera, from Oxford Economics. "But I have no concrete evidence that this is happening, and in any case, if it were so for me it would be positive news, not negative."

Towards a new way of measuring the economy

There is a lack of certainty as to what is happening with the 'macro' data, but where there is more consensus is that the way of measuring growth has to change or a change should be considered.

"For me the GDP measurement methodology is not in question, it is comparable to that of other European countries and is as reliable as any other country. Another thing is that, beyond the latest somewhat strange GDP data, the pandemic It has revealed the need and usefulness of using alternative economic data of much higher frequency, which tell us what is happening in the economy in almost real time, but this would be a different discussion, "explains Ángel Talavera.

What needs to be changed is not so clear. "It is difficult to answer what needs to change. During the previous expansionary phase it was said that GDP growth was being underestimated, it seems clear that it does not capture the growth ", argues María Jesús Fernández, from Funcas.

Miguel Cardoso, Chief Economist for Spain at BBVA Research, does see clearly that, "although the INE methodology is reviewed and approved by Eurostat, it is true that we should advance in welfare measures that include more variables. For example, inequality, health quality, environmental sustainability ".

"The measurement of GDP is a broad debate. There are various economic and social realities that are not being measured well. For example, there is an international review by the UN Statistics Commission, because negative externalities of production are not being taken into account. , such as the cost on the environment or social costs, nor certain measurements of the digital economy, the value of data, which has an economic value even if it is not computed ", sums up Carlos Victoria, research economist at EsadeEcPol

So how much is Spain going to grow?

Simply put, it is not clear. The Government maintains its estimates that GDP will rebound 6.5% this year and 7% in 2022. Data that is far from the 2% that the INE has marked as advance data for the third quarter, although it is expected that I raised it on the 23rd. from December.

The OECD now forecasts that Spain will grow by 4.5% in 2021 and that the economy will not recover its pre-pandemic levels until the first quarter of 2023. It is a similar figure to that predicted by the European Commission, which estimates an advance this year of 4 , 6%.

It does seem that, at some point, employment and GDP will walk at the same time again. "At some point in the coming months we will see a convergence of these two variables, with a greater advance in GDP than in employment," predicts the head of BBVA Research.

"What is happening, basically, is that accounting exaggerated the fall of the economy in 2020 and, now, underestimates growth in 2021", sums up the economist Francisco Melis. "The same in a few months we see that GDP grows more than employment and that statistical growth, in 2022, is greater than the real one," adds María Jesús Fernánez de Funcas.