Employment Performance and Labor Market Institutions: The Case of Spain

Rafael Muñoz de Bustillo Llorente

in Fighting Unemployment

Published in print February 2005 | ISBN: 9780195165845
Published online July 2005 | e-ISBN: 9780199835515 | DOI:
 Employment Performance and Labor Market Institutions: The Case of Spain

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From a stunning 23.9% in 1994, Spain’s unemployment rate fell to 13% in 2001. In this chapter, Bustillo challenges the conventional views that the main culprits of Spain’s high unemployment were overly generous and protective labor market institutions, and that the recent dramatic improvement can be explained by free market oriented institutional reforms. Benefit levels were not nearly as generous as many observers believe—about 30% of the average wage, one of the lowest in the European Union. Spain has been characterized by wage moderation, relatively low labor costs, and relatively high earnings inequality. Nor are employment protection laws particularly onerous: by the mid-1980s dismissal rates were comparable to other leading OECD countries. The author contends that the sources of much of the unemployment problem can be found elsewhere: in the rapid transformation from a highly agricultural to a service economy in a period of political upheaval in which employer-union relations were highly charged; a rapidly growing labor force; low R&D investment; an ineffective system of job training and placement; and limited geographic mobility, due largely to high housing prices which made it risky for workers to relocate.

Keywords: flexibility; welfare state; labor market; regulation; deregulation; unemployment; employment; labor market institutions; unemployment benefits; employment protection; wages; wage inequality; collective bargaining; Spain

Chapter.  20851 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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