Unemployment in Spain: The failure of wage devaluation

Villanueva, Paloma; Rey, Luis Cárdenas del

doi:10.1177/10353046211023807

Cited by 7 publications

(4 citation statements)

References 44 publications

(49 reference statements)

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“…These results evidence how little influence wage costs had on export price formation (indeed, an inverse link is actually detected) and the balance of trade, compared to greater dynamism in foreign markets, the sharp fall in oil prices, the appreciation of the euro and non-price competitiveness factors. This is in line with most of the empirical studies mentioned here which question the effectiveness of wage devaluation (Álvarez Peralta, 2014;Álvarez et al, 2019;Cárdenas et al, 2020;Fernández, 2014b;Gracia & Paz, 2013;Janssen, 2013;Mariolis et al, 2019;Rísquez, 2016;Villanueva et al, 2020;Villanueva & Cárdenas, 2021;Weisbrot & Ray, 2011;Xifré, 2021). It also coincides with the conclusions of a report by the McKinsey Global Institute (2019) in that only about 18 per cent of global goods trade is now driven by labour-cost arbitrage.…”

Section: Resultssupporting

confidence: 89%

“…The expansionary effect of the autonomous components of aggregate demand, and particularly of exports, had a positive impact on the capacity utilisation rate, and there is an upturn in equipment investment. • Villanueva and Cárdenas (2021) look at the facts of the case of Spain and provide evidence for a negative effect of wage devaluation on gross domestic product and a positive effect on the unemployment rate. They conclude that in a wage-led economy such as that of Spain a reduction in the labour share translates into a contraction in GDP and in a higher unemployment rate, given the high Okun's law coefficient.…”

Section: Theoretical Fr Amework Of the Crisis E Xit Str Ategy: Intern...mentioning

confidence: 99%

“…In the case of the five largest euro area economies in 2000–2018 these factors seem to have improved significantly in the Netherlands and Spain, improved slightly in Italy and Germany and worsened slightly in France. Cárdenas et al (2020) argue that labour market reforms and widespread wage reduction were not the drivers of Spanish economic recovery, but that recovery stems from the demand‐side of the economy. The expansionary effect of the autonomous components of aggregate demand, and particularly of exports, had a positive impact on the capacity utilisation rate, and there is an upturn in equipment investment. Villanueva and Cárdenas (2021) look at the facts of the case of Spain and provide evidence for a negative effect of wage devaluation on gross domestic product and a positive effect on the unemployment rate. They conclude that in a wage‐led economy such as that of Spain a reduction in the labour share translates into a contraction in GDP and in a higher unemployment rate, given the high Okun's law coefficient. Herrero and Rial (2022) find that labour costs play only a minor role for international competitiveness, while non‐price factors are the main drivers of German exports.…”

Section: Theoretical Framework Of the Crisis Exit Strategy: Internal ...mentioning

confidence: 99%

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The results of internal devaluation policy as a crisis exit strategy: The case of Spain

Ubillos

Fernández–Sainz

2022

Global Policy

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In line with the orientation of EU economic policy, the Spanish government has favoured a strategy of internal devaluation as a way of adjusting price levels within the currency union and offsetting the fall in competitiveness accumulated over time, as evidenced by the persistent trade deficit. The results of comparative empirical studies indicate that the internal wage devaluation applied in Spain as a crisis exit strategy (in the form of labour reforms and, in general, measures to contain labour costs) does not seem to have attained the desired goals in terms of reducing the relative prices of exports and consolidating a model of growth based on external demand. Indeed, the estimates drawn up show that tailwinds – the depreciation of the euro as a result of the measures taken by the ECB, greater economic activity by trading partners and the fall in the price of oil – exercised a decisive influence in the trends followed by the prices of exports and the balance of trade during the period of crisis management in Spain.

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Section: Resultssupporting

confidence: 89%

Section: Theoretical Fr Amework Of the Crisis E Xit Str Ategy: Intern...mentioning

confidence: 99%

Section: Theoretical Framework Of the Crisis Exit Strategy: Internal ...mentioning

confidence: 99%

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The results of internal devaluation policy as a crisis exit strategy: The case of Spain

Ubillos

Fernández–Sainz

2022

Global Policy

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“…On the other hand, wages are also a source of total demand (Villanueva and Cárdenas, 2021). In the classical approach, unemployment occurs voluntarily since real wages are flexible.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Unemployment Rate Convergence in the Case of Turkey: A Regional Analysis within the Scope of Dollarization and Real Wage

YİĞİTELİ¹

2022

Bulletin of Economic Theory and Analysis

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The unemployment rate is a fundamental variable in the socioeconomic comparison between regions. Hence, it is included in the focus of regional economic policies. Regional policy sets are frequently used to eliminate regional unemployment differences. This situation raises discussions about the efficiency of the employment policies and questions whether regional unemployment rates tend to converge to national averages. Especially in economies with regional development differences and the labor market does not exhibit a homogeneous structure, the regional analysis of unemployment rates is becoming more critical. This paper analyses the convergence of unemployment rates with the panel data set, which includes 26 regions of Turkey and the period 2004-2020. It is investigated if regional macroeconomic interactions in Turkey make the labor market homogeneous. Besides, the effects of dollarization and real wage on the unemployment rate change are questioned. The study's findings indicate the presence of deterministic and stochastic Beta convergence. According to the unconditional and conditional Beta convergence analysis, the change in the unemployment rate depends on the initial value of the unemployment rate. The findings also show that if dollarization and real wage growth increase, unemployment rate growth also increases. Sigma convergence analysis also confirms the presence of unemployment rate convergence.

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Employment protection and labour productivity growth in the EU: skill-specific effects during and after the Great Recession

Fedotenkov,

Kvedaras,

Sanchez-Martinez

2023

Empirica

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Does employment protection affect sectoral productivity growth differently during crises and recovery periods? This paper sheds light into this question by investigating the relationship between employment protection legislation (EPL hereafter) and sectoral labour productivity growth in the EU in the context of the Great Recession. We consider the crisis and recovery periods, evaluate the relevance of both levels and changes in EPL for productivity growth, and explore the conditioning role played by sectoral differences in terms of cumulativeness of knowledge as well as the skills of the labour force, captured by different levels of education. We find that stricter labour protection reduces labour productivity growth in sectors with a large share of workers with tertiary education, whereas this effect is negligible or positive in sectors where workers with secondary or only primary education are more prevalent (such as agriculture, mining and quarrying). We attribute this to a more intensive labour hoarding in the former, as EPL strengthens labour hoarding in sectors that rely on firm-specific knowledge accumulation and skilled human capital that are difficult to substitute with physical capital. Whereas it is simple to dismiss (and to find later) unskilled employees. They not only can be substituted more easily with capital, but also the costs of their firing are lower, they are overrepresented among workers holding temporary contracts, and they might be unequally informed and able to exercise their rights. This leads to low (if any) labour hoarding and little impact of EPL on labour productivity in such sectors. We also document that the negative effect is prominent only during the crisis, and an increase in the stringency of EPL over an extended period stimulates employers to substitute labour with investments in physical and knowledge capital.

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Unemployment in Spain: The failure of wage devaluation

Cited by 7 publications

References 44 publications

The results of internal devaluation policy as a crisis exit strategy: The case of Spain

The results of internal devaluation policy as a crisis exit strategy: The case of Spain

Unemployment Rate Convergence in the Case of Turkey: A Regional Analysis within the Scope of Dollarization and Real Wage

Employment protection and labour productivity growth in the EU: skill-specific effects during and after the Great Recession

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