The Spanish Labor Market in a Cross-Country Perspective

The Spanish labor market is not working: the unemployment rate is structurally very high; wages are not very responsive to labor market conditions, causing a high cyclicality of unemployment; and the labor market is highly dual. Compared with the EU15, Spanish labor market institutions and policies stand out by the structure of its collective bargaining, which occurs mostly at an intermediate level, and by very high severance payments for permanent workers. Based on a quantitative analysis, the paper shows that moving away from the intermediate level of bargaining would go a long way toward bringing the unemployment rate closer to the EU15 average. The key reform needed to reduce the share of temporary workers is reducing employment protection of permanent workers. Substantially reforming the collective bargaining system and reducing the protection of permanent workers are likely to be highly complementary to secure a substantial reduction in the unemployment rate. The recent 2010 labor market reform attempts to address these issues, although its effects are still to materialize.Unemployment;Economic models;Labor costs;Labor markets;Wage bargaining;unemployment rate, employment, bargaining, unemployment benefits, employment protection, severance, unemployment benefit, employment protection legislation, unemployment rates, high unemployment, equilibrium unemployment, labor demand, social security, equilibrium unemployment rate, unemployment insurance, high unemployment rate, high employment, social assistance, employment subsidies, unemployed, labor force participation, rate of unemployment, employment growth, negotiations, equilibrium unemployment rates, employment promotion, effects on employment, employment creation, employment rates, temporary employment, permanent employee, duration of unemployment benefits, permanent employment, unemployment durations, labor force survey, employment costs, equilibrium ? unemployment, employment adjustment, effects of unemployment, public employment, duration of unemployment, average unemployment benefit, equilibrium ? unemployment rate, employment declines, increasing unemployment, frictional unemployment, job creation, average unemployment, incidence of unemployment, employment patterns, public employment services, employment services, new employee, unemployment increases, unemployed worker