The Effect of Unemployment Spells on Subsequent Wages in Spain

Abstract

In our analysis we try to recover the wage loss from unemployment in Spain and see how it is affected by previous unemployment experience, unemployment duration, eligibility for unemployment benefits, and previous wages. We also study its variations across groups. Our main conclusion is that while there is some evidence that labor market rigidities tend to lower it, the wage loss of displaced workers is remarkably high: more than 30%, that is, twice the equivalent figure for the U.S. and France. Wages in Spain suffer from a serious mismeasurement problem that we do our best to control, so that our results are less robust than the ones that would be obtained with better data sets. However, they indicate a large level of wage flexibility in Spain.

JEL Classification: J6