Working Paper: CEPR ID: DP1184
Authors: Juan J. Dolado; Juan F. Jimeno
Abstract: In this paper we analyse the underlying causes behind Spanish unemployment which is now at 24%. We interpret this unfortunate outcome as the result of a series of adverse shocks, compounded by disinflationary policies and by a flawed system of labour market institutions. Our aim is to explain the main sources of shocks to unemployment, and the most relevant features of their transmission mechanism. To do so we use a structural VAR approach in modelling the Spanish labour market.
Keywords: unemployment; shocks; persistence; Spain
JEL Codes: J3; J4; J5; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wage shocks (J31) | Unemployment (J64) |
| Demand shocks (E39) | Unemployment (J64) |
| Price shocks (E39) | Unemployment (J64) |
| Price shocks (E39) | Inflation (E31) |
| Demand shocks (E39) | Inflation (E31) |
| All shocks (Y70) | Reduction in unemployment (J68) |
| Demand shocks + Wage shocks (J39) | High unemployment (J64) |
| Initial conditions + Labour supply evolution + Wage push + Unemployment protection systems (J08) | Less significant causes of unemployment (J65) |
| Bargaining structures + Employment security legislation + Lack of competition in non-tradable sectors (J42) | More critical factors for high unemployment persistence (J64) |