Labor Market Outliers: Lessons from Portugal and Spain

Economic Policy, Vol. 15, Issue 31, October 2000

Posted: 18 Aug 2001

See all articles by Olympia Bover

Olympia Bover

Banco de España - Research Department; Centre for Economic Policy Research (CEPR)

Pilar Garcia-Perea

Banco de España

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Abstract

Spain has the highest unemployment rate (22.2%) of any European Union country, Portugal one of the lowest (7.3%). Superficially, these countries share many labor market features: the toughest job security rules in the OECD, an apparently similar architecture of wage bargaining, and comparable generosity of their unemployment insurance systems, at least since 1989. We address the puzzle by examining Portuguese and Spanish labor market institutions, in particular job security, unemployment benefits and the system of wage bargaining. We then conduct empirical analysis of Spanish and Portuguese unemployment outflows and wage distributions, using micro data. We find differences in unemployment benefits (non-existent in Portugal until 1985, and less generous nowadays), differences in wage flexibility (wage floors by category established by collective agreements are set at a lower relative level in Portugal), and, in practice, higher firing costs in Spain. A key explanation of the difference in Portuguese and Spanish unemployment rates is the wage adjustment process. Generous benefit levels may have been necessary for the path Spanish unions took, but this was not the sole explanation of different wage setting in Spain and Portugal.

Suggested Citation

Bover, Olympia and Garcia Perea, Pilar and Portugal, Pedro, Labor Market Outliers: Lessons from Portugal and Spain. Economic Policy, Vol. 15, Issue 31, October 2000, Available at SSRN: https://ssrn.com/abstract=247414

Olympia Bover (Contact Author)

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain
+34 91 338 5979 (Phone)
+34 91 338 5678 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pilar Garcia Perea

Banco de España

Madrid 28014
Spain

Pedro Portugal

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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