Working Paper: CEPR ID: DP1954
Authors: Sonsoles Castillo; Juan J. Dolado; Juan F. Jimeno
Abstract: Spain and Portugal are two neighbour economies which share many characteristics. Spanish unemployment is more than double Portuguese unemployment, however. In this chapter we resort to Structural Vector Autoregression (SVAR) techniques to ascertain which shocks and what propagation mechanism underlie the functioning of the labour markets in both countries. Our results show that price adjustment is more sticky and that real wage flexibility is higher in Portugal. In line with this evidence, we find that, although shocks hitting both economies since the beginning of the eighties were not too dissimilar, their effects on unemployment were much more long-lasting in Spain than in Portugal.
Keywords: unemployment; persistence; shocks; structural VAR
JEL Codes: E24; J60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shocks affecting both economies (F69) | unemployment in Spain (J64) |
| shocks affecting both economies (F69) | unemployment in Portugal (J68) |
| nominal price stickiness (E31) | prolonged unemployment after shocks in Spain (J64) |
| real wage flexibility in Portugal (F16) | absorb shocks without substantial increase in unemployment (J65) |
| institutional differences in unemployment insurance (J65) | persistence disparities in unemployment effects (J64) |
| aggregate demand shocks (E00) | unemployment in Spain (J64) |
| productivity shocks (O49) | unemployment in Spain (J64) |
| price shocks (E30) | unemployment in Spain (J64) |
| wage shocks (J31) | unemployment in Spain (J64) |
| labor supply shocks (J20) | unemployment in Spain (J64) |
| aggregate demand shocks (E00) | unemployment in Portugal (J68) |
| productivity shocks (O49) | unemployment in Portugal (J68) |
| price shocks (E30) | unemployment in Portugal (J68) |
| wage shocks (J31) | unemployment in Portugal (J68) |
| labor supply shocks (J20) | unemployment in Portugal (J68) |