Explaining Unemployment in Spain: Structural Change, Cyclical Fluctuations, and Labor Market Rigidities

September 1, 1994

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Jeffrey R. Franks Explaining Unemployment in Spain: Structural Change, Cyclical Fluctuations, and Labor Market Rigidities, (USA: International Monetary Fund, 1994) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Spain has the most serious and persistent unemployment problem in Europe, with an unemployment rate that reached 24.6 percent in early 1994. This paper explores the characteristics of this unemployment problem, its causes, and provides a brief discussion of recent labor market reform measures and their likely Impact. A demographic shift in recent years has produced a large rise in female labor force participation and a decrease in agricultural jobs to which the economy has been unable to adjust. The effects of generous unemployment benefits and the large underground economy may explain 6–12 percentage points of the resulting unemployment, but the remainder must be explained by failures and rigidities in the labor market. The paper presents econometric evidence that unemployment displays hysteresis, and that wages are not responsive to changes in the unemployment rate. This evidence supports the claim that insider-outsider factors and rigidities in the legal structure of the labor market are responsible for much of the high unemployment rate. Recent reforms have improved the functioning of the labor market, but they are unlikely to be sufficient to reduce unemployment to single digit rates without further action.

Subject: Employment, Labor, Labor force, Labor markets, Unemployment, Unemployment rate

Keywords: Employment, Europe, Growth inertia, Insider-outsider unemployment problem, Job creation, Labor force, Labor markets, Long-term unemployment, Market failure, Real wage, Unemployment, Unemployment change, Unemployment compensation, Unemployment hysteresis, Unemployment level, Unemployment problem, Unemployment rate, Unemployment statistics, Workers produces high official unemployment, WP, Youth unemployment

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/102
Stock No:

WPIEA1021994
ISBN:

9781451852578
ISSN:

1018-5941

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