Despite strong economic growth over the past decade, labour productivity growth has been modest. GDP per hour worked expanded by 0.9% a year between 2001 and 2006, compared to the OECD average of 1.8%. The government’s National Reform Programme aims to boost productivity and sustainable growth through reforms in product and labour markets, higher education and human capital, investment in infrastructure and research and innovation.

Spain spent 1.2% of GDP on R&D in 2006, significantly below the EU27 (1.76%) and OECD (2.26%) averages. However, this is a substantial increase from the levels of the mid-1990s. The business sector finances 47% of gross domestic expenditure on R&D; the government finances 42.5%, 5.9% is financed from abroad and 4.5% from other national sources. Boosting R&D and innovation in the business sector is a challenge as most industries are relatively low-technology and most firms are small or medium-sized.