Abstract
Given the constraints imposed by European Monetary Union membership, flexibility in the labour market is crucial for countries and regions belonging to it. The paper addresses this issue empirically and analyses real wage flexibility in Spain over the 1985-1999 period. Previous studies have examined wage flexibility by means of parametric methods. However, this paper analyses it within the framework of a semiparametric panel data model. The results point to a high degree of wage rigidity in Spain, because national and regional wage setting are closely linked. However, semiparametric estimation allows us to find some signs of flexibility: first, regional wages respond to the evolution of regional unemployment rate when workers are more and more efficient; second, productivity increases at regional level have positive effects on wage growth, especially when regional unemployment rate is decreasing.
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