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More Alike than Different: The Spanish and Irish Labour Markets Before and After the Crisis

  • Agnese, Pablo


    (FH Düsseldorf)

  • Salvador, Pablo F.


    (Universidad Nacional de Cuyo)

This paper analyses the labour markets of Spain and Ireland, which have experienced a severe downturn in the recent global crisis as reflected by the largest increases in their unemployment rates among other developed economies. Spain and Ireland might seem at first to feature very different labour markets, which go from very tight to very flexible labour conditions. Our analysis, however, goes beyond this simplistic argument and brings to light the strong commonalities that seem to have been hidden underground. We estimate a dynamic multi-equation structural model for each country, and then offer two sets of dynamic simulations which account for the swings of the unemployment rates before and after the 2007 crisis. Our results suggest looking beyond the degree of flexibility of both labour markets, just to focus instead on other variables usually neglected by more conventional approaches. In particular, such variables as the growth of capital stock, the growth of labour productivity, and demographics, succeed in explaining a great part of the changes in unemployment in both countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5742.

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Length: 33 pages
Date of creation: May 2011
Date of revision:
Publication status: published in: IZA Journal of European Labor Studies, 2012, 1:9
Handle: RePEc:iza:izadps:dp5742
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  1. Karanassou, Marika & Snower, Dennis J, 1998. "How Labour Market Flexibility Affects Unemployment: Long-Term Implications of the Chain Reaction Theory," Economic Journal, Royal Economic Society, vol. 108(448), pages 832-49, May.
  2. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
  3. Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
  4. John FitzGerald & Jonathan Hore, 2002. "Wage Determination in Economies in Transition: Ireland, Spain and Portugal," Papers WP147, Economic and Social Research Institute (ESRI).
  5. Roberto Bande & Marika Karanassou, 2006. "Labour Market Flexibility and Regional Unemployment Rate Dynamics: Spain 1980-1995," Working Papers 574, Queen Mary University of London, School of Economics and Finance.
  6. Carlos Garriga, 2010. "The Role of Construction in the Housing Boom and Bust in Spain," Working Papers 2010-09, FEDEA.
  7. I Kadek Dian Sutrisna Artha & Jakob de Haan, 2011. "Labor Market Flexibility and the Impact of the Financial Crisis," DNB Working Papers 280, Netherlands Central Bank, Research Department.
  8. Gerry Rodgers, 2007. "Labour Market Flexibility and Decent Work," Working Papers 47, United Nations, Department of Economics and Social Affairs.
  9. Pantula, Sastry G., 1989. "Testing for Unit Roots in Time Series Data," Econometric Theory, Cambridge University Press, vol. 5(02), pages 256-271, August.
  10. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  11. Alan Barrett & Adele Bergin & David Duffy, 2006. "The Labour Market Characteristics and Labour Market Impacts of Immigrants in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 37(1), pages 1-26.
  12. Marika Karanassou & Hector Sala, 2010. "The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment?," Working Papers wpdea1006, Department of Applied Economics at Universitat Autonoma of Barcelona.
  13. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, July.
  14. Jaakko Kiander & Matti Virén, 2001. "Measuring Labour Market Flexibility in the OECD Countries," Empirica, Springer, vol. 28(2), pages 187-201, June.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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