Spain's Job Upgrade: Will Labor Quantity Shift To Quality?

Julius Probst, PhD explores Spain's remarkable post-pandemic labor market recovery and how better jobs and productivity in 2026 can maintain that momentum.

Photo Credit: Florian Wehde

One of the more remarkable economic comeback stories of the last decade is the reversal of fortune within the Eurozone since the end of the pandemic. While Southern Europe experienced a decade of stagnation following the Global Financial Crisis, economic growth jump-started in 2022.

Spain’s economy vastly outperformed the Eurozone with employment growing by about 13% and GDP growing by 11% since 2020 (compared to 7% and 6% for the Eurozone as a whole). This kind of growth is astonishing, especially compared to countries like Germany and Austria, which have basically been stagnant since 2020.

In this piece, I will explain how Spain pulled off this miraculous recovery, why many workers have only seen limited benefits from stronger growth so far, and what it means for the labor market.

Spain’s strength: Drawing in additional workers

How has Spain transformed itself from being a laggard to one of the more dynamic Eurozone economies in just a few years?

Well, a little bit of luck has created very favorable economic conditions for Spain (and Southern Europe, in general):

1. The tourism boom:
   Southern Europe experienced a surge in tourism following the pandemic. Spain’s annual visitors have grown from less than 85 million in 2019 to more than 95 million in 2025. The increase in revenues has created additional jobs in hospitality, accommodation and other tourism-related services.
   

2. Lower trade exposure:

   Spain’s economy is more service-centric and less vulnerable to international shocks. Unlike Germany, for example, Spain is less exposed to the U.S. trade war and China’s strategy of export-dumping on global markets.
   

3. Digital nomads:

   The pandemic has created a trend around digital nomadism. Remote workers have flocked to Spain (and other Southern European countries) for the excellent food, good weather, and the culture — I mean, who wouldn’t?
   

4. Near-shoring within Europe:

   More companies are taking advantage of the cost and wage difference between the European core and the Southern periphery. With the pandemic shift towards remote work, it has been much easier to justify opening offices in Madrid and Barcelona instead of Munich and Vienna. Spain’s workforce is highly educated while the cost of employing a tech or finance worker might be 30 to 40% cheaper.
   

5. Worker inflow from abroad:

   Immigration has been by far the biggest factor boosting Spain’s economy. Total population has grown from about 46.5 million in 2020 to more than 49 million in 2025 — with the entire gain due to immigration. Some Spaniards have returned home due to the improved economic outlook, but most of the inflow is from Northern Africa and Latin America. Many experienced professionals from struggling South American economies (Venezuela, Argentina, Colombia) moved to Spain and, thanks to the shared language and culture, they have found it relatively easy to integrate and obtain gainful employment.

   

6. Labor market slack:

   The economic expansion has also drawn in workers who had been sidelined for years. Registered unemployment has fallen from over 3.5 million in 2021 to under 2.5 million. The unemployment rate declined from 15% to less than 10%. While seemingly still high, the official number probably overstates the problem. Spain’s relatively large shadow economy means that some classified as unemployed are working in the informal sector.

What does that mean for labor demand?

Labor demand remains elevated thanks to strong economic growth. Unlike other European markets, vacancies in Spain continue to be much higher than pre-pandemic and remain close to an all-time high.

Moreover, a good chunk of elevated demand comes from Spain’s “job upgrade”: employment gains in high-value-added sectors like tech and professional services are outpacing tourism-related activities.

Spain’s weakness: Many workers have experienced mediocre wage gains

The Spanish economy has grown by adding workers: the inflow of several million immigrant workers together with the large decline in unemployment has created a job boom. Spain accounts for more than 2 million of the 9 million jobs that the Eurozone has added since 2020.

The reduction in unemployment is, of course, extremely applaudable and alleviates poverty and welfare-dependence. However, long-run economic growth cannot rely on workforce growth alone. Productivity gains are key to raising living standards, and here we see that big improvements have so far been elusive. Wages have barely kept up with inflation in recent years — as is true for many Eurozone economies — particularly for professional service and tech workers.

Another source of disappointment is that, unlike the U.K., output and employment in both sectors have grown by similar amounts.

While Spain is adding plenty of workers in high value-added sectors, there are no signs of any meaningful productivity improvement yet. Instead of just adding quantity (workers), economic growth needs to rely more on quality.

What is the outlook?

Spain’s economy has hugely benefited from the EU’s Recovery Plan set up in the wake of the pandemic. So far, Spain has been the biggest beneficiary with some 55 billion Euros in grants received, 23 billion of which were received only in August of last year. The money is dedicated to finance investment and reforms that raise long-term growth, with a strong focus on green transition, digitalization, skills, and modernizing public administration. Examples include renewables, grid upgrades, broadband rollout, rail and urban transport projects.

The scale of these investments will continue to provide a modest boost to economic growth throughout 2026 with forecasters anticipating some 2% GDP growth (compared to about 1.3% for the Eurozone),

Furthermore, the significant surge in employment in professional services and tech should improve growth performance and lead to productivity gains down the road; it might just take a little longer than expected.

What does that mean for recruiters?

Next to its touristic appeal, Spain has become a new hub for digital nomads and certain professional and tech roles. The labor market is the tightest in many years, even as immigration is adding to labor supply. Appcast’s cost-per-application data shows that recruitment costs in Spain have risen and remain elevated.

For many European companies, Spain remains an appealing cost-effective location thanks to its educated workforce and lower wages. While Spanish workers have not seen big wage gains during the growth boom just yet, the creation of more professional service and tech jobs should eventually lead to productivity gains and benefit companies and workers alike.