Are the Spanish long-term unemployed unemployable?

Abstract

Long-term unemployment reached unprecedented levels in Spain in the wake of the Great Recession and it still affects around 57% of the unemployed. We document the sources that contributed to the rise in long-term unemployment and analyze its persistence using state-of-the-art duration models. We find pervasive evidence of negative duration dependence, while personal characteristics such as mature age, lack of experience, and entitlement to unemployment benefits are key to understand the cross-sectional differences in the incidence of long-term unemployment. The negative impact of low levels of skill and education is muted by the large share of temporary contracts, but once we restrict attention to employment spells lasting at least 1 month This is a revised version of the Presidential Address delivered by the first author at the 40th Simposio de la Asociación Española de Economía in Girona. We are grateful to two anonymous referees, Manuel Arellano, Rolf Campos, Mario Izquierdo, Ernesto Villanueva, and seminar participants at the Banco de España, the European Central Bank, the International Labor Office, and the University of Edinburgh for comments, to Yolanda Rebollo-Sanz for help with the data, and to Lucía Gorjón and Ingeborg Kukla for excellent research assistance. Bentolila thanks the Economics Department of Universidad Carlos III de Madrid for their hospitality. García-Pérez and Jansen gratefully acknowledge financial support from MINECO/FEDER (Grants ECO2015-65408-R and ECO2015-69631-P). these factors also contribute to a higher risk of long-term unemployment. Surprisingly, workers from the construction sector do not fare worse than similar workers from other sectors. Finally, self-reported reservation wages are found to respond strongly to the cycle, but much less to individual unemployment duration. In view of these findings, we argue that active labor market policies should play a more prominent role in the fight against long-term unemployment while early activation should be used to curb inflows.

Long‐Term Unemployment and the Great Recession: Evidence from UK Stocks and Flows

“…Through the case of Spain, Bentolila et al . () have assessed the possible role of institutional factors in accounting for the unprecedented rise in LTU in Southern European countries.…”

Unemployment in administrative data using survey data as a benchmark

“…The long-term unemployment (LTU) expansion includes unemployment spells beyond the expiration of unemployment benefits. This expansion is routinely applied in the empirical literature (see García Pérez 2008;Rebollo-Sanz 2012;Bentolila et al 2017; Fernández-Navia 2019 for example). The short-term unemployment (STU) expansion aims to capture unregistered unemployment spells which do not count as unemployment by the administrative definition.…”

The labor market in Spain, 2002–2016

“…Long-term unemployment in Spain disproportionally affects older and less-educated workers [1]. Moreover, there is a negative relationship between the probability of exiting unemployment and the duration of unemployment spells, so finding a job becomes increasingly harder for long-term unemployed individuals.…”