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Reducing Spanish unemployment under the EMU

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  • Olivier Blanchard
  • J. F. Jimeno

Abstract

Spain enter the EMU with an unemployment rate roughly ten percentage Points higher than the Euro average - 19% versus 9%. Can it reasonably hope to eliminate this differential and join its Euro partners in further lowering unemployment? If so, how long will it take? And what will it take? The Spanish economy has grown at close to 3% per year, and the unemployment rate has fallen by 4 points, from 23% in 1995 to 19% in 1998. This has given hope to those who think that unemployment can indeed be lowered at a steady pace. However, Spain has just gone on the Euro. Spain will now have the same interest rate as its Euro-partners. And the margin of maneuver on the other macroeconomic instrument, fiscal policy, will reamin very limited. Spain will have to decrease its unemployment rate, with one of its two hand to decrease its unemployment rate, with one of its two hands tied behind its back. This seems a tough challenge. First, Spain has to grow much faster than its Euro-partners. Second, this growth has to meet some conditions. Banced growth requires a change in the composition of demand, a lower share of consumption and government expenditures and a higher share of investment. Moreover, Spain will have to achieve a lower inflation rate than its partners, perhaps even deflation. The least it can be said is that it may not be easy. There lies the challenge facing Spain under EMU.
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Suggested Citation

  • Olivier Blanchard & J. F. Jimeno, "undated". "Reducing Spanish unemployment under the EMU," Studies on the Spanish Economy 19, FEDEA.
    • Handle: RePEc:fda:fdaeee:19
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    Cited by:

    1. Gilles Saint-Paul & Samuel Bentolila, 2000. "Will EMU Increase Eurosclerosis?," Working Papers wp2000_0004, CEMFI.
    2. Julen Esteban-Pretel & Elisa Faraglia, 2005. "Monetary Shocks in a Model with Loss of Skills," CIRJE F-Series CIRJE-F-380, CIRJE, Faculty of Economics, University of Tokyo.
    3. Samuel Bentolila & Juan F. Jimeno, "undated". "Spanish Unemployment: The End of the Wild Ride?," Working Papers 2003-10, FEDEA.
    4. Gómez García, F. & Rebollo Sanz, Y. & Usabiaga Ibáñez, C., 2002. "Nuevas estimaciones de la NAIRU de la economía española: métodos directos," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 20, pages 509-530, Diciembre.
    5. Dionisio Ramirez & Gabriel Rodr¨ªguez, 2014. "Do Labor Reforms in Spain Have an Effect on the Equilibrium Unemployment Rate?," International Journal of Social Science Studies, Redfame publishing, vol. 2(1), pages 105-120, January.
    6. Juncal Cunnado & Fernando PErez De Gracia, 2003. "Sacrifice Ratios: Some lessons from EMU countries, 1960-2001," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(3), pages 327-337.

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