The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. The evolution of Spanish unemployment has been quite idiosyncratic. The full employment levels of the early seventies were followed by unemployment rates that were the highest within the OECD countries in the aftermath of the oil price shocks. While unemployment was extremely persistent in most of the eighties and nineties, it experienced its sharpest decline in recent years. We investigate the determinants of this unemployment trajectory using the analytical framework of the chain reaction theory (CRT). We show that unemployment may not gravitate towards its natural rate due to frictional growth, a phenomenon that arises from the interplay of lagged adjustment processes and growing exogenous variables in a dynamic system with spillovers. The empirical analysis distinguishes four periods: (i) 1978-1985, (ii) 1986-1990, (iii) 1991-1994, (iv) 1995-2005, and finds that capital accumulation is a crucial driving force of unemployment. Thus, our theoretical and empirical results question the key role of the natural rate in policy making.JEL Classification: E22, E24, J21

Spanish Regional Unemployment Revisited: The Role of Capital Accumulation

“…These regional findings are in line with the aggregate results obtained by Karanassou and Sala (2009a) Finally, we should note the asymmetric pattern of the gain/loss effects in the relative unemployment rates of the two groups over the horizon under examination. In the boom years 1985-1991 and 1994-2000, the low unemployment rate group benefited by around 1.5 times more than the high unemployment group of regions due to the increase in capital accumlation.…”

“…In addition, Malley and Moutos (2001) use a variant of the LNJ framework and show that, for 20 OECD countries, the unemployment rate is affected in the long-run when domestic and foreign capital stocks grow at unequal rates. Furthermore, Arestis et al (2007) document a negative capital-unemployment relationship in nine EMU countries, and Karanassou et al (2008Karanassou et al ( , 2009a show that capital accumulation plays a fundamental role in shaping unemployment movements in the Nordic countries, Spain, and Australia, respectively. Also, Blanchard (2000), Sawyer (2002), Herbertson and Zoega (2002), Smith and Zoega (2005), are some examples of papers that find a negative relationship between aggregate investment levels and the unemployment rate.…”

Unemployment dynamics in Uruguay: An analysis using chain reaction theory

“…This approach has been applied to the study of the unemployment rate in the United Kingdom, the United States, Denmark, Australia, Portugal, Spain and a group of countries in the European Union (Karanassou and Snower, 1998;Henry, Karanassou and Snower, 2000;Karanassou, Sala and Snower, 2003;Bande, 2002;Bande and Karanassou, 2009;Karanassou, Sala and Salvador, 2008;Karanassou and2010;González and Sala, 2011). 6 These studies highlight the importance of this approach in comparison with a one-equation model of the unemployment rate, concluding that economic policy decisions should not be based on what the natural rate of unemployment determines, since the unemployment rate is found not to gravitate around this equilibrium level.…”

“…The estimates indicate a positive longrun elasticity ranging from 0.3 to 1.0, implying that there is also a long-run effect on unemployment. In their study of Australia, Karanassou and Sala (2010) conclude that capital accumulation was the factor that most affected the trend of unemployment in the country in the 1990s and early 2000s. On the basis of these findings, the authors question the NAIRU approach and rule out the evolution of unemployment being only a response to temporary shocks or changes in labour market institutions.…”

La dinámica del desempleo en el Uruguay a través de la teoría de la reacción en cadena

“…Este enfoque se ha aplicado al estudio de la tasa de desempleo del Reino Unido, los Estados Unidos, Dinamarca, Australia, Portugal, España y un conjunto de países de la Unión Europea (Karanassou y Snower, 1998;Henry, Karanassou y Snower, 2000;Karanassou, Sala y Snower, 2003;Bande, 2002;Bande y Karanassou, 2009;Karanassou, Sala y Salvador, 2008;y 2010González y Sala, 2011) 6 . En estos estudios se resalta la importancia de este enfoque en comparación con un modelo uniecuacional de la tasa de desempleo, y se concluye que las decisiones de política económica no deben basarse en lo que determina la tasa natural de desempleo, dado que se encuentra que la tasa de desempleo no gravita en torno a este nivel de equilibrio.…”