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Contract staggering and unemployment during the great recession: evidence from Spain

Author

Listed:
  • Luis Diéz-Catalán

    (University of Minnesota)

  • Ernesto Villanueva

    (Banco de España)

Abstract

We study the impact of (widespread) downward wage rigidity on the fl ows from employment to non-employment at the onset of the Great Recession. Downward wage (growth) rigidity is due to the fact that sector-level collective agreements in Spain are automatically extended to all fi rms, setting wage minima for workers in the same province-industry-skill cell. We identify the impact of wage rigidity on employment because, unlike settled ones, newly bargained contracts can adjust to aggregate shocks. Using the exact dates of bargaining periods of all sector-level contracts in Spain, we fi nd that agreements reached after the fall of Lehman Brothers were for an average wage growth of 1.8%, while agreements signed before 15 September 2008 were for mean wage increases of 3.1%. Matching information on collective agreements with longitudinal Social Security records on workers, we document two fi ndings. Firstly, the probability of job loss between 2009 and 2010 was 1 percent higher among workers covered by agreements signed before the fall of Lehman Brothers than among workers covered by contracts signed afterwards. Secondly, the analysis of a subsample of contracts with information about the exact province-industry-skill level minimum wage suggests that the impact of date of contract signature on wage changes and employment losses is confi ned to workers whose pre-recession earnings were below 1.2 times the contract-specifi c minimum wage. Those fi ndings are consistent with the hypothesis that the staggering of contracts and the inability to renegotiate contracts amplify aggregate shocks. We end with a discussion of whether those results can be extrapolated to other sample periods.

Suggested Citation

  • Luis Diéz-Catalán & Ernesto Villanueva, 2015. "Contract staggering and unemployment during the great recession: evidence from Spain," Working Papers 1431, Banco de España.
  • Handle: RePEc:bde:wpaper:1431
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    References listed on IDEAS

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    Cited by:

    1. Effrosyni Adamopoulou & Ernesto Villanueva, 2020. "Wage Determination and the Bite of Collective Contracts in Italy and Spain: Evidence From the Metalworking Industry," CRC TR 224 Discussion Paper Series crctr224_2020_176, University of Bonn and University of Mannheim, Germany.
    2. Romain Duval & Prakash Loungani, 2021. "Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 31-83, March.
    3. Pedro S. Martins, 2021. "30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 335-369, June.
    4. Claudio Lucifora & Daria Vigani, 2021. "Losing Control? Unions’ Representativeness, Pirate Collective Agreements, and Wages," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 60(2), pages 188-218, April.
    5. Ronchi, Maddalena & di Mauro, Filippo, 2017. "Wage Bargaining Regimes and Firms' Adjustments to the Great Recession," IWH-CompNet Discussion Papers 1/2017, Halle Institute for Economic Research (IWH).
    6. Hijzen Alexander & Martins Pedro S., 2020. "No extension without representation? Evidence from a natural experiment in collective bargaining," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-31, March.
    7. Fernando Martins, 2015. "On the wage bargaining system in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    8. Adamopoulou, Effrosyni & Villanueva, Ernesto, 2022. "Wage determination and the bite of collective contracts in Italy and Spain," Labour Economics, Elsevier, vol. 76(C).
    9. David Card & Ana Rute Cardoso, 2021. "Wage Flexibility Under Sectoral Bargaining," NBER Working Papers 28695, National Bureau of Economic Research, Inc.
    10. Jose Garcia‐Louzao, 2021. "Employment and Wages over the Business Cycle in Worker‐Owned Firms: Evidence from Spain," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 418-443, June.

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    More about this item

    Keywords

    collective bargaining; labor demand; aggregate shock; wage rigidity;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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