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Wage, price and unemployment dynamics in the Spanish transition to EMU membership

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  • Javier Ordoñez

    (Universitat Jaume I)

  • Katarina Juselius

    (University of Copenhagen)

Abstract

This paper provides an empirical investigation of the wage, price and unemployment dynamics that have taken place in Spain during the last two decades. The aim of this paper is to shed light on the impact of the European economic integration process on Spanish labour market and the convergence to a European level of prosperity. We find some important lessons to be learnt from the Spanish experience that should be relevant for the new member states. First, high competitiveness in the tradable sector seems crucial for the real and nominal convergence to be successful. The increase in consumption wages and consumer prices as a result of the Balassa-Samuelson effect should not be allowed to exceed the improvement in productivity. Second, before fixing the real exchange rate it seems crucial that it is on its sustainable (competitive) purchasing power parity level. Third, there does not seem to be a short-cut to a European level of standard of living: the path to sustainable prosperity seems to follow the path of productivity improvement. Forth, excessive real wage increases seem to lead to increasing unemployment, slowdown in productivity growth, higher interest rates, and loss of competitiveness. On the other hand, the access to the European market and the possibility of increased export demand is likely to speed up the convergence process as long as competitiveness is not eroded by excess wage increases. El presente trabajo analiza la dinámica de los salarios, precios y desempleo habida en España durante las últimas dos décadas. El objetivo es mejorar nuestra compresión sobre el impacto que el proceso de integración europeo pudo tener sobre el mercado de trabajo español y el proceso de convergencia hacia un nivel de prosperidad similar al europeo. Nuestros resultados apuntan a que de la experiencia española se podrían extraer conclusiones de interés para los países recientemente incorporados. En primer lugar, una elevada competencia en el sector de los bienes comercializables aparece como necesaria para que se produzca la convergencia tanto nominal comercial. El incremento en los salarios y los precios como resultado del efecto Balassa-Samuelson no deberían exceder los incrementos en productividad. En segundo lugar, antes de fijar los tipos de cambio es necesario que éste se encuentre en un nivel sostenible (competitivo) de capacidad de compra. En tercer lugar, no parece existir un "atajo" para alcanzar un nivel de vida similar a la media europea: el camino hacia una prosperidad sostenible sigue la senda del crecimiento de la productividad. En cuarto lugar, demandas salariales excesivas conllevan un incremento del empleo, una caída en el crecimiento de la productividad, tipos de interés más elevados y pérdida de competitividad. Por otro lado, el acceso a los mercados europeos y la posibilidad de aumentar las exportaciones favorece la convergencia a menos que la competitividad no se vea erosionada por demandas salariales excesivas.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2008-09.

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Length: 32 pages
Date of creation: May 2008
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2008-09

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Keywords: efecto Balassa-Samuelson; convergencia real y nominal; dinámica del desempleo; paridad del poder de compra; VAR cointegrado. Balassa-Samuelson effect; nominal and real convergence; unemployment; dynamics; purchasing power parity; cointegrated VAR.;

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  1. Søren Johansen & Katarina Juselius, 1992. "Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model," Discussion Papers 92-04, University of Copenhagen. Department of Economics.
  2. Søren Johansen & Katarina Juselius & Roman Frydberg & Michael Goldberg, 2008. "Testing hypotheses in an I(2) model with applications to the persistent long swings in the Dmk/$ rate," CREATES Research Papers 2008-03, School of Economics and Management, University of Aarhus.
  3. Juselius, Katarina & Toro, Juan, 2005. "Monetary transmission mechanisms in Spain: The effect of monetization, financial deregulation, and the EMS," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 509-531, April.
  4. Anindya Banerjee & Bill Russell, 2002. "Inflation and Measures of the Markup," Dundee Discussion Papers in Economics 130, Economic Studies, University of Dundee.
  5. David Colander, 2008. "The Economy as an Evolving Complex System III: Current Perspectives and Future Directions. Edited by LAWRENCE E. BLUME and STEVEN N. DURLAUF," Economica, London School of Economics and Political Science, vol. 75(297), pages 191-192, 02.
  6. Juselius, Katarina & MacDonald, Ronald, 2004. "International parity relationships between the USA and Japan," Japan and the World Economy, Elsevier, vol. 16(1), pages 17-34, January.
  7. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
  8. Moene, K.O. & Wallerstein, M. & Hoel, M., 1992. "Bargaining Structure and Economic Performance," Memorandum 10/1992, Oslo University, Department of Economics.
  9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
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