Working Paper: CEPR ID: DP8152
Authors: Samuel Bentolila; Pierre Cahuc; Juan J. Dolado; Thomas Le Barbanchon
Abstract: This paper analyzes the strikingly different response of unemployment to the Great Recession in France and Spain. Their labor market institutions are similar and their unemployment rates just before the crisis were both around 8%. Yet, in France, unemployment rate has increased by 2 percentage points, whereas in Spain it has shot up to 19% by the end of 2009. We assess what part of this differential is due to the larger gap between the dismissal costs of permanent and temporary contracts and the less restrictive rules regarding the use of the latter contracts in Spain. Using a calibrated search and matching model, we estimate that about 45% of the surge in Spanish unemployment could have been avoided had Spain adopted French employment protection legislation before the crisis started.
Keywords: Great Recession; Temporary Contracts; Unemployment
JEL Codes: H29; J23; J38; J41; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| gap in dismissal costs (J65) | differential unemployment rates in Spain compared to France (J69) |
| use of temporary contracts (M55) | job security and unemployment outcomes (J65) |
| regulatory environment in Spain (K23) | job destruction rates (J63) |
| gap in firing costs (D25) | higher unemployment in Spain (J64) |
| higher volatility in the Spanish labor market (J69) | adverse impact on unemployment (J65) |