Spanish Industrial Unemployment: Some Explanatory Factors

Abstract

The high level of unemployment is probably the worst feature of the recent evolution of the Spanish economy. In 1970 the overall unemployment rate stood at 1 per cent of the civilian labour force; in 1984 it is estimated to have gone over the 20 per cent level. This is a substantial increase which has no parallel in any European country. Between 1970 and 1983 the average unemployment rate in the EEC rose by 8-6 percentage points, while the increase in Spain over the same period was of 17 points. There is wide agreement among Spanish economists that these figures may be overstating the actual extent of the problem. The incidence of the underground economy and of fraudulent practices in unemployment registration may be wider than in most EEC countries. Nevertheless, we believe that, even taking into account these measurement difficulties, there has been a genuine worsening of the employment situation in Spain relative to that in other Western economies. The purpose of this paper is to review the evidence of the last 20 years about the main variables that influence the Spanish labour market, and to attempt a preliminary explanation of the increase in unemployment. For the latter task we use the analytical framework recently developed by Layard and Nickell (1984a), and concentrate on those institutional factors that may have influenced the level of unemployment consistent with non-accelerating inflation (NAIRU). The next section of the paper describes the key facts that we are trying to explain. Section II presents the analytical framework that we use, and discusses its theoretical foundations. These are dealt with very briefly, since they are fully explained in Layard and Nickell (1984a). Here we concentrate mostly on the empirical specification and on the description of the variables. The econometric results are presented in Section III and the explanation of the unemployment increase is given in Section IV. The final section summarizes our findings.