THE SPANISH LABOUR MARKET IN THE ECONOMIC CRISIS (2008-2012): UNEMPLOYMENT AND LABOUR MARKET REFORM

Abstract

In this economic crisis the Spanish labor market has generated unemployment at a rate faster than all OECD countries, reaching the highest rate also. The most immediate cause of this is the massive job losses. The differential in unemployment rate and in job loss cannot be explained by a GDP growth much more negative. Similarly, Spain and the U.S. show job losses beyond what would correspond to the collapse of the building sector.
The reasons for the Spanish exceptionality are two: the significant real wage rigidity and the high external flexibility. The article shows that insufficient wage flexibility prevents a wage dynamics according to the productivity growth and limits the wage response to changes in the unemployment rate. External flexibility is based on temporary contracts and generates a high sensitivity of employment and unemployment to changes in GDP growth. The explanation of both characteristics (great facility for external adjustment in the margin and great difficulty in adjusting wages) is the regulations that show the Spanish labour legislation in areas such as collective bargaining and firing costs.
The labour market reform of 2012 modifies both elements, but not convincingly resolves contractual duality, which is the main mechanism generating volatility over the business cycle and unemployment in times of recession.