Wage determination in the Spanish industry

In this paper we estimate wage equations for the Spanish industry using time series data on 85 industrial sectors, which allows us to distinguish between aggregate and sector specific effects in wage determination. Industry wages respond mainly to economy wide labour market conditions and to a much lesser extent to sector specific productivity gains. The size of the insider effect has not remained stable through the sample period. The estimated equations show a strong transitory effect of unemployment on wages, which is in accordance with the non--stationarity of the Spanish unemployment rate. This hysteresis effect seems well accounted for by the sharp rise in the proportion of long term unemployment.