Exploring the big jump in the Spanish unemployment rate: Evidence on an 'added-worker' effect
Spain is destroying more jobs than any other European country. In the third quarter of 2009, the unemployment rate stood at 17.9%, the second-highest rate in the 27-nation EU and the highest rate in the euro area (EA-16). The exponential growth of the Spanish unemployment rate is the by-product of falling employment rates. However, there is a second explanation which is often overlooked by unemployment forecasters: changes in labour force participation rates. On the one hand, in times of recession participation rates tend to increase in order to safeguard sustainable household incomes. This phenomenon is known as the 'added-worker' effect. On the other hand, there is also an opposite effect in that individuals leave the labour force in recessions because chances to find employment are low. This is the 'discouraged-worker' effect. Applying a threshold cointegration model to Spanish quarterly data over the period 1976-2008, we find that the added-worker effect dominates the discouraged-worker effect, but only when unemployment is below 11.7%. Above this threshold, the two effects cancel each other out so that the participation rate is not influenced by further deteriorations of economic conditions. Since Spain recently passed the 11.7% unemployment threshold, our model predicts that there will be no further increases in the participation rate in the near future.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Balke, Nathan S. & Fomby, Thomas B., 1992.
9209, Federal Reserve Bank of Dallas.
- Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002.
"Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms,"
Economics Working Papers
651, Department of Economics and Business, Universitat Pompeu Fabra.
- Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, "undated". "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Working Papers 2003-14, FEDEA.
- Hernanz, Virginia & Jimeno, Juan F & Kugler, Adriana D., 2003. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms," CEPR Discussion Papers 3724, C.E.P.R. Discussion Papers.
- Kugler, Adriana & Jimeno, Juan F. & Hernanz, Virginia, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," IZA Discussion Papers 657, Institute for the Study of Labor (IZA).
- Hansen, Bruce E. & Seo, Byeongseon, 2002.
"Testing for two-regime threshold cointegration in vector error-correction models,"
Journal of Econometrics,
Elsevier, vol. 110(2), pages 293-318, October.
- Tom Doan, "undated". "RATS programs to replicate Hansen/Seo paper on threshold cointegration," Statistical Software Components RTZ00092, Boston College Department of Economics.
- Carlo Altavilla & Antonio Garofalo & Concetto Paolo Vinci, 2005. "Is the Discouraged Worker Effect Time-Varying?," CELPE Discussion Papers 97, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
- Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-218, May.
- Dolado, Juan J. & Jimeno, Juan F., 1997.
"The causes of Spanish unemployment: A structural VAR approach,"
European Economic Review,
Elsevier, vol. 41(7), pages 1281-1307, July.
- Juan J. Dolado & Juan F. Jimeno, "undated". "The causes of Spanish unemployment: A structural VAR apporach," Working Papers 96-19, FEDEA.
- Kim B. Clark & Lawrence H. Summers, 1980.
"Demographic Differences in Cyclical Employment Variation,"
NBER Working Papers
0514, National Bureau of Economic Research, Inc.
- Kim B. Clark & Lawrence H. Summers, 1981. "Demographic Differences in Cyclical Employment Variation," Journal of Human Resources, University of Wisconsin Press, vol. 16(1), pages 61-79.
- Hansen, Bruce E, 1999.
" Testing for Linearity,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 13(5), pages 551-576, December.
- Samuel Bentolila & Juan F. Jimeno, "undated".
"Spanish Unemployment: The End of the Wild Ride?,"
- Prieto-Rodríguez, Juan & Rodríguez-Gutiérrez, César, 2000. "Participation of Married Women in the Labour Market and the 'Added Worker Effect' in Europe," IRISS Working Paper Series 2000-12, IRISS at CEPS/INSTEAD.
- Namkee Ahn & Pedro Mira, "undated". "Labor Force Participation and Retirement of Spanish Older Men: Trends and Prospects," Working Papers 2000-25, FEDEA.
- Benati, Luca, 2001. "Some empirical evidence on the 'discouraged worker' effect," Economics Letters, Elsevier, vol. 70(3), pages 387-395, March.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 533-576, September.
- Goodman, John L, Jr, 1974. "Spectral Analysis of the Dependence of Labor Force Participation on Unemployment and Wages," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 390-393, August.
- Bover, O. & Arellano, M. & Bentolila, S., 1997.
"Unemployment Duration, Benefit Duration, and the Business Cycle,"
9717, Centro de Estudios Monetarios Y Financieros-.
- Olympia Bover & Manuel Arellano & Samuel Bentolila, 1996. "Unemployment duration, benefit duration, and the business cycle," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 57.
- Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002. "Unemployment Duration, Benefit Duration and the Business Cycle," Economic Journal, Royal Economic Society, vol. 112(479), pages 223-265, April.
- Arellano, Manuel & Bentolila, Samuel & Bover, Olympia, 1998. "Unemployment Duration, Benefit Duration and the Business Cycle," CEPR Discussion Papers 1840, C.E.P.R. Discussion Papers.
- Kim B. Clark & Lawrence H. Summers, 1982.
"Labor Force Participation: Timing and Persistence,"
NBER Working Papers
0977, National Bureau of Economic Research, Inc.
- Kim B. Clark & Lawrence H. Summers, 1982. "Labour Force Participation: Timing and Persistence," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 825-844.
- Juan Prieto-Rodriguez & Cesar Rodriguez-Gutierrez, 2000. "The added worker effect in the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 32(15), pages 1917-1925.
- Darby, Julia & Hart, Robert A. & Vecchi, Michela, 2001. "Labour force participation and the business cycle: a comparative analysis of France, Japan, Sweden and the United States," Japan and the World Economy, Elsevier, vol. 13(2), pages 113-133, April.
- Alfred Tella, 1964. "Relation of Labor Force to Employment," ILR Review, Cornell University, ILR School, vol. 17(3), pages 454-469, April.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Olympia Bover & Manuel Arellano, 1995.
"Female labour force participation in the 1980s: the case of Spain,"
Fundación SEPI, vol. 19(2), pages 171-194, May.
- Olympia Bover & Manuel Arellano, 1994. "Female Labour Force Participation in the 1980's: The Case of Spain," Working Papers 9427, Banco de España;Working Papers Homepage.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1099-1105. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.