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The effects of wage flexibility on activity and employment in Spain

Rafael Domenech (), Juan Ramón García and Camilo Ulloa

Journal of Policy Modeling, 2018, vol. 40, issue 6, 1200-1220

Abstract: In this paper we estimate the macroeconomic effects of the greater wage and firms’ internal flexibility promoted by the economic policies implemented since 2012, which changed markedly Spanish labour regulations. To do so, we propose a structural VAR that allows us to break down changes in main macroeconomic variables into different structural shocks. From a policy perspective, the estimation of the structural shocks allows us to simulate a counterfactual scenario, whereby we conclude that the effects of less rigid labour market are positive and significant. Our results suggest that, if these policies were implemented at the beginning of the crisis, they could have avoided a significant part of the falls in GDP and employment.

Keywords: Labour market; Reforms; Wage flexibility; Structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E24 J08 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:40:y:2018:i:6:p:1200-1220

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