Internal devaluation in a wage-led economy: the case of Spain

Villanueva²,

Álvarez

et al. 2020

ROKE

Self Cite

Since 2014 the Spanish economy has recovered positive GDP growth, and the country has been growing well above the eurozone average. This recovery has sparked an academic and political debate concerning the role that structural reforms, prescribed by the ‘Troika,’ have played in peripheral Europe. For certain scholars and institutions, these structural reforms have allowed the market, through greater wage flexibility, to make the necessary adjustments to restore economic growth, resulting in a ‘healthy’ economic recovery. But to what extent is this mainstream narrative solidly backed up by the empirical evidence? Can Spain be held up as an international example of the ‘success’ of these reforms? The aim of this paper is to shed light on this debate. We consider that labor market reforms and wage devaluation policy are not the drivers of economic recovery. Instead, we offer an alternative explanation for recovery based on the theory of demand-led growth.

Section: Appendix 1 Data and Alternative Estimationsmentioning

confidence: 98%

Section: 2-an Alternative Explanation Of the Spanish Recovery Basedmentioning

confidence: 99%

Peripheral Europe beyond the Troika: assessing the ‘success’ of structural reforms in driving the Spanish recovery

Villanueva²,

Álvarez

et al. 2020

ROKE

Self Cite

“…In order to calculate these effects, we follow a single-equation methodology as it reflects the contribution of each aggregate demand component to GDP growth, whereas simultaneous equation models are more suitable for considering exogenous shocks. This methodology is largely found in the literature (Álvarez et al, 2018;Onaran and Obst, 2016;Storm and Naastepad, 2012).…”

Section: Introductionmentioning

confidence: 99%

Unemployment in Spain: The failure of wage devaluation

Villanueva

The Economic and Labour Relations Review

2021

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

“…Such practices were enhanced by the wage‐devaluation policy in place since 2010 (Álvarez et al . 2019). Additionally, labour relations literature has revealed that the capability of collective bargaining to reduce labour segmentation is decreasing as a consequence of decentralization policy (Muñoz de Bustillo and Pinto 2018).…”

Section: Discussionmentioning

confidence: 99%

Flexibilization at the Core to Reduce Labour Market Dualism: Evidence from the Spanish Case

Villanueva

2020

Brit J Industrial Rel

Institutionalist explanations of the high non‐standard employment rate in the Spanish labour market have pointed to the relevance of flexibilization at the margin, that is, the deregulation of non‐standard jobs. Using Spanish social security micro data, we find evidence that the liberalization reforms of 2010 and 2012 had flexibilization at their core, that is, greater instability due to open‐ended and full‐time contracts (erosion of employment protection) and a rise in turnover among periphery workers, increasing the segregation gap. We conclude that there is a high level of deregulation and simultaneous dualization due to the combination of flexibilization at the margin (until 2008) and the core (2010–2012).