Labour Reallocation, Labour Flaws and Labour Market Institutions: Evidence from Spain

The main objective of this paper is to learn from the Spanish experience, first, to what extent labour reallocation is nowadays higher than in the seventies and eighties, and, secondly, the role of labour market institutions at easing or hindering the process of labour reallocation. We approach the measurement of labour reallocation from two perspectives. First, we follow the traditional macroeconomic approach to identifying reallocation shocks by analysing the dispersion of employment growth across sectors, regions, and occupations. Secondly, we document the evolution of worker and job flows, and estimate the effects of some labour market institutions on worker flows from pooled cross-sections of Spanish sectors and regions for the period 1987-1997. Our main findings are: i) job reallocation was highest during the mid-eighties; during the nineties job reallocation seems to have returned to the levels of the early and late eighties, ii) worker turnover has noticeably increased, iii) job reallocation (job creation and job destruction) explains around one fourth of total worker turnover, being the rest due to rotation of workers through a given set of employment positions, and iv) fixed term employment, by increasing rotation, is the main labour market institutions driving worker flows.