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Why are labor markets in Spain and Germany so different?

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  • Casares, Miguel
  • Vázquez, Jesús

Abstract

The volatility of unemployment fluctuations has been about 3 times higher in Spain than in Germany over the recent business cycles (1996–2013). Besides, the rates of unemployment of these two countries have moved on opposite directions featuring negative cross correlation. We estimate a DSGE model with unemployment and find these explanatory factors: (i) wage rigidity has been higher in Spain, (ii) the elasticity of hours per worker has been lower in Spain, (iii) labor force shocks have been stronger and more persistent in Spain, (iv) risk-premium shocks have deteriorated labor demand in Spain while fiscal/net exports shocks have stimulated labor demand in Germany, and (v) the idiosyncratic shocks from the ECB single monetary policy have switched from reducing Spanish unemployment (before 2007) to increasing it (after 2007).

Suggested Citation

  • Casares, Miguel & Vázquez, Jesús, 2018. "Why are labor markets in Spain and Germany so different?," Economic Modelling, Elsevier, vol. 75(C), pages 320-335.
    • Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:320-335
    DOI: 10.1016/j.econmod.2018.07.008
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    Cited by:

    1. Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2019. "The German labor market during the Great Recession: Shocks and institutions," Economic Modelling, Elsevier, vol. 78(C), pages 192-208.
    2. José E. Boscá & Javier Ferri & Margarita Rubio, 2022. "Fiscal and Macroprudential Policies in a Monetary Union," Working Papers 2022-08, FEDEA.
    3. Alexandra M. Espinosa & Ignacio Díaz-Emparanza, 2021. "The Long-term Relationship Between International Labour Migration and Unemployment in Spain," Journal of International Migration and Integration, Springer, vol. 22(1), pages 145-166, March.
    4. María Gutiérrez-Portilla & Adolfo Maza & María Hierro, 2018. "Foreigners versus natives in Spain: different migration patterns? Any changes in the aftermath of the crisis?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(1), pages 139-159, July.

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    More about this item

    Keywords

    Unemployment; Germany and Spain; DSGE models;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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