IDEAS home Printed from https://ideas.repec.org/a/iec/inveco/v33y2009i2p145-178.html

Flexibility at the margin and labour market volatility: The case of Spain

Author

Listed:
  • Héctor Sala

    (Universitat Autònoma de Barcelona)

  • José I. Silva

    (Universitat Jaume I de Castelló)

Abstract

The Spanish labour market is a prominent case of segmentation with flexibility at the margin (e.g., just a􀀞ecting fixed-term employees). Flexibility at the margin produces a gap in separation costs between temporary and permanent workers which causes fixed-term contracts to be the main workforce adjustment device. It also leads to a productivity gap, due to high turnover and lack of on-the-job training of temporary employees. To explain the high volatility of the Spanish labour market we develop a matching model with temporary and permanent employees where these gaps play a central role. This model is calibrated and simulated to match the stylised facts and assess the cyclical implications of the 1984 and 1997 labour market reforms.

Suggested Citation

  • Héctor Sala & José I. Silva, 2009. "Flexibility at the margin and labour market volatility: The case of Spain," Investigaciones Economicas, Fundación SEPI, vol. 33(2), pages 145-178, May.
    • Handle: RePEc:iec:inveco:v:33:y:2009:i:2:p:145-178
    as

    Download full text from publisher

    File URL: https://www.fundacionsepi.es/investigacion/revistas/paperArchive/May2009/v33i2a1.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alonso-Borrego, César & Fernández-Villaverde, Jesús & Galdon-Sanchez, Jose Enrique, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," IZA Discussion Papers 1129, IZA Network @ LISER.
    2. Dolado Juan & Jansen Marcel & Jimeno Serrano Juan, 2007. "A Positive Analysis of Targeted Employment Protection Legislation," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-30, July.
    3. Guell, Maia & Petrongolo, Barbara, 2007. "How binding are legal limits? Transitions from temporary to permanent work in Spain," Labour Economics, Elsevier, vol. 14(2), pages 153-183, April.
    4. Raquel Fonseca & Rafael Muñoz, 2003. "Can the matching model account for Spanish unemployment?," Investigaciones Economicas, Fundación SEPI, vol. 27(2), pages 277-308, May.
    5. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    6. Lorraine Dearden & Howard Reed & John Van Reenen, 2006. "The Impact of Training on Productivity and Wages: Evidence from British Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 397-421, August.
    7. Cabrales, Antonio & Hopenhayn, Hugo A., 1997. "Labor-market flexibility and aggregate employment volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 189-228, June.
    8. 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.
    9. Victor Aguirregabiria & Cesar Alonso-Borrego, 2014. "Labor Contracts And Flexibility: Evidence From A Labor Market Reform In Spain," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 930-957, April.
    10. John J. McCall, 1982. "The Economics of Information and Uncertainty," NBER Books, National Bureau of Economic Research, Inc, number mcca82-1, August.
    11. Hector Sala & José I. Silva & Manuel Toledo, 2012. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 991-1017, September.
    12. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Sum), pages 19-50.
    13. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    14. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages 270-295, June.
    15. Sonsoles Castillo & Juan F. Jimeno & Omar Licandro, "undated". "Employment segmentation, labour mobility and Mismatch: Spain, 1987-1993," Working Papers 98-04, FEDEA.
    16. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    17. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
    18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    19. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    20. Cecilia Albert & Carlos García-Serrano & Virginia Hernanz, 2004. "Firm-provided training and temporary contracts," Spanish Economic Review, Springer;Spanish Economic Association, vol. 7(1), pages 67-88, January.
    21. Silva, José I. & Toledo, Manuel, 2008. "Separation costs, job heterogeneity and labor market volatility in the matching model," Economics Letters, Elsevier, vol. 101(1), pages 77-79, October.
    22. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    23. Julián Messina & Giovanna Vallanti, 2007. "Job Flow Dynamics and Firing Restrictions: Evidence from Europe," Economic Journal, Royal Economic Society, vol. 117(521), pages 279-301, June.
    24. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    25. Rosario Sanchez & Luis Toharia, 2000. "Temporary workers and productivity: the case of Spain," Applied Economics, Taylor & Francis Journals, vol. 32(5), pages 583-591.
    26. Pedro Portugal & John T. Addison, 2004. "Key Elasticities in Job Search Theory: International Evidence," Working Papers w200412, Banco de Portugal, Economics and Research Department.
    27. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
    28. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    29. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages 214-244, June.
    30. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
    31. Juan F. Jimeno & Luis Toharia, 1993. "The effects of fixed-term employment on wages: theory and evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 475-494, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Normann Rion, 2019. "Waiting for the Prince Charming: Fixed-Term Contracts as Stopgaps," Working Papers halshs-02331887, HAL.
    2. García Serrano, Carlos, 2012. "Del pasmo al marasmo: El sector de la construcción y su relación con la crisis del empleo/The Construction Sector and its Relationship With the Employment Crisis," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 183-182, Abril.
    3. Doménech, Rafael & García, Juan Ramón & Ulloa, Camilo, 2018. "The effects of wage flexibility on activity and employment in Spain," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1200-1220.
    4. Zaveh, Fakhraldin, 2014. "Search, Rigidities and Unemployment Dynamics," EconStor Preprints 157661, ZBW - Leibniz Information Centre for Economics.
    5. Silva, José I. & Vázquez-Grenno, Javier, 2013. "The ins and outs of unemployment in a two-tier labor market," Labour Economics, Elsevier, vol. 24(C), pages 161-169.
    6. Hector Sala & José I. Silva & Manuel Toledo, 2012. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 991-1017, September.
    7. Antonia López‐Villavicencio & José Ignacio Silva, 2011. "Employment Protection And The Non‐Linear Relationship Between The Wage‐Productivity Gap And Unemployment," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 200-220, May.
    8. Vassilis Monastiriotis & Stylianos Sakkas, 2021. "Employment mobility and labour market flexibility in the EU," JRC Working Papers on Territorial Modelling and Analysis 2021-01, Joint Research Centre.
    9. José Ramón García & Valeri Sorolla, 2017. "Frictional and Non-Frictional Unemployment in a Labor Market with Matching Frictions," Manchester School, University of Manchester, vol. 85(4), pages 450-465, July.
    10. José Ramón García Martínez & Valeri Sorolla, 2013. "Frictional and Non Frictional Unemployment in Models with Matching Frictions," Working Papers. Serie AD 2013-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Monastiriotis, Vassilis & Kaplanis, Ioannis, 2011. "Flexible employment and cross- regional adjustment," Working Papers 2072/179671, Universitat Rovira i Virgili, Department of Economics.
    12. Elke Jahn & Enzo Weber, 2016. "The effect of temporary help jobs on employment volatility," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 412-427, February.
    13. Normann Rion, 2020. "Fluctuations in a Dual Labor Market," Working Papers halshs-02570540, HAL.
    14. Lochner Benjamin, 2024. "Employment Protection in Dual Labor Markets: Any Amplification of Macroeconomic Shocks?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(1), pages 249-304, January.
    15. Normann Rion, 2021. "Job creation in a dual labor market: a constructivist approach," Working Papers hal-03125344, HAL.
    16. Marta Kahancová & Monika Martišková, 2015. "Bargaining for Social Rights at the Sectoral Level: The Case of Slovakia," Research Reports 9, Central European Labour Studies Institute (CELSI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sala, Hector & Silva, José I., 2005. "The Relevance of Post-Match LTC: Why Has the Spanish Labor Market Become as Volatile as the US One?," IZA Discussion Papers 1823, IZA Network @ LISER.
    2. Cervini-Plá, María & Ramos, Xavier & Ignacio Silva, José, 2014. "Wage effects of non-wage labour costs," European Economic Review, Elsevier, vol. 72(C), pages 113-137.
    3. Hector Sala & José I. Silva & Manuel Toledo, 2012. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 991-1017, September.
    4. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2016. "The Cyclicality of the Opportunity Cost of Employment," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1563-1618.
    5. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    6. Victoria Osuna & Jose-Ignacio García-Pérez, 2012. "The effects of introducing a single open-ended contract in Spain," EcoMod2012 3825, EcoMod.
    7. Amaral, Pedro S. & Tasci, Murat, 2016. "The cyclical behavior of equilibrium unemployment and vacancies across OECD countries," European Economic Review, Elsevier, vol. 84(C), pages 184-201.
    8. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F., 2019. "Dual Labour Markets Revisited," IZA Discussion Papers 12126, IZA Network @ LISER.
    9. Miquel Faig, 2008. "Labor Market Cycles and Unemployment Insurance Eligibility," 2008 Meeting Papers 183, Society for Economic Dynamics.
    10. Konopczak, Karolina, 2021. "Modelling labour adjustments over the business cycle using asymmetric cointegration," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    11. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    12. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    13. Manoj Atolia & John Gibson & Milton Marquis, 2018. "Labor Market Volatility in the RBC Search Model: A Look at Hagedorn and Manovskii’s Calibration," Computational Economics, Springer;Society for Computational Economics, vol. 52(2), pages 583-602, August.
    14. Charlot, Olivier & Malherbet, Franck, 2010. "Education and the Welfare Gains from Employment Protection," IZA Discussion Papers 4799, IZA Network @ LISER.
    15. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    16. Kuehn Lars-Alexander & Petrosky-Nadeau Nicolas & Zhang Lu, "undated". "An Equilibrium Asset Pricing Model with Labor Market Search," GSIA Working Papers 2010-E63, Carnegie Mellon University, Tepper School of Business.
    17. Juan J. Dolado & Salvador Ortigueira & Rodolfo Stucchi, 2016. "Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(4), pages 421-459, November.
    18. Rich Ryan, 2024. "Unemployment volatility: When workers pay costs upon accepting jobs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(3), pages 303-333, September.
    19. Burcu Eyigungor, 2010. "Specific Capital and Vintage Effects on the Dynamics of Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 100(3), pages 1214-1237, June.
    20. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iec:inveco:v:33:y:2009:i:2:p:145-178. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Isabel Sánchez-Seco The email address of this maintainer does not seem to be valid anymore. Please ask Isabel Sánchez-Seco to update the entry or send us the correct address (email available below). General contact details of provider: https://www.fundacionsepi.es/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.