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A Comparative Study of The Portuguese and Spanish Labour Markets

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  • Olympia Bover
  • Pilar García-Perea
  • Pedro Portugal

Abstract

Spain faces the highest unemployment rate among the European Union countries (22.2%), and Portugal one of the lowest (7.3%). However, superficially, these two countries share common labour market features: they both have the most stringent job security rules in the OECD, the architecture of their bargaining systems appears identical, and the generosity of their unemployment insurance systems seems, after 1989, roughly comparable. In this paper we address this puzzle by providing a systematic comparison of the Portuguese and Spanish labour markets. We find that, at a closer look, there are differences in unemployment benefits (non-existent in Portugal until 1985, and less generous nowadays, with the replacement ratio as a percentage of much lower wage level in Portugal), differences in wage flexibility (minimum wages by category established by collective agreements are set at a lower relative level in Portugal, giving employers more room for manoeuvre than in Spain), and, in practice higher firing costs in Spain. We conclude that a key factor in explaining the difference in Portuguese and Spanish unemployment rates since the late seventies is the wage adjustment process. In turn, the wage adjustment in the two countries may have been influenced by the unemployment benefit system and, to a lesser extent, by the degree of job protection.

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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w199801.

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Date of creation: 1998
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Handle: RePEc:ptu:wpaper:w199801

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Cited by:
  1. Olivier Blanchard & Pedro Portugal, 1998. "What Hides Behind An Unemployment Rate: Comparing Portuguese and Us Unemployment," Working Papers w199803, Banco de Portugal, Economics and Research Department.
  2. Stephen Nickell, 2003. "A picture of European unemployment: success and failure," LSE Research Online Documents on Economics 20039, London School of Economics and Political Science, LSE Library.
  3. Almeida, Rita, 2007. "The labor market effects of foreign owned firms," Journal of International Economics, Elsevier, vol. 72(1), pages 75-96, May.
  4. Ravi Balakrishnan, 2001. "The interaction of firing costs and on-the-job search: an application of a search theoretic model to the Spanish labour market," Banco de Espa�a Working Papers 0102, Banco de Espa�a.
  5. Stephen Nickell, 2003. "Labour Market Institutions and Unemployment in OECD Countries," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(2), pages 13-26, October.
  6. Stephen Nickell & Luca Nunziata & Wolfgang Ochel & Glenda Quintini, 2001. "The Beveridge Curve, Unemployment and Wages in the OECD from the 1960s to the 1990s - Preliminary Version," CEP Discussion Papers dp0502, Centre for Economic Performance, LSE.
  7. John FitzGerald, 2001. "Wage Determination in Economies in Transition: Ireland Spain and Portugal," Papers WP141, Economic and Social Research Institute (ESRI).
  8. Olivier Blanchard, 2006. "European unemployment: the evolution of facts and ideas," Economic Policy, CEPR & CES & MSH, vol. 21(45), pages 5-59, 01.
  9. repec:hal:wpaper:halshs-00586795 is not listed on IDEAS
  10. Addison, John T. & Teixeira, Paulino, 1999. "Is Portugal really so arteriosclerotic? Results from a cross-country analysis of labor adjustment," ZEW Discussion Papers 99-30, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Leandro N. Carrera & Angelaki Marina & Daniel Fernando da Soledade Carolo, 2010. "Political competition and societal veto players: the politics of pension reform in Southern Europe," LSE Research Online Documents on Economics 27156, London School of Economics and Political Science, LSE Library.

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