Unemployment in Spain: The failure of wage devaluation

Paloma Villanueva and Luis Cárdenas
Authors registered in the RePEc Author Service: Luis Cardenas del Rey

The Economic and Labour Relations Review, 2021, vol. 32, issue 4, 552-574

Abstract: This article analyses from a Keynesian approach the effect of wage devaluation on the Spanish labour market during the Great Recession post-2008. It challenges the pro-flexibility literature, which attributes to labour relations reforms the prevention of larger job destruction in the recession and a larger reduction in unemployment during the subsequent expansion. Instead, we examine the role of wage devaluation in the operation of Okun’s law and gross domestic product, using an extended version of the Bhaduri–Marglin model. We find that wage devaluation has not significantly modified Okun’s law and that through its impact on income distribution, the unemployment rate rose by 1.9 percentage points. We therefore provide evidence for the negative effect of wage devaluation on gross domestic product and the positive effect on the unemployment rate. JEL Codes: C22, E11, E24

Keywords: Bhaduri–Marglin; labour market; Spanish economy; wage devaluation (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ecolab:v:32:y:2021:i:4:p:552-574

DOI: 10.1177/10353046211023807

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