Two-Tier Labor Markets in the Great Recession: France vs. Spain
Centro de Estudios Monetarios y Financieros (CEMFI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); French National Center for Scientific Research (CNRS); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Juan Jose Dolado
Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)
Thomas Le Barbanchon
French Ministry of Social Affairs, Labour and Solidarity (DARES); National Institute of Statistics and Economic Studies (INSEE)
IZA Discussion Paper No. 5340
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.
Number of Pages in PDF File: 55
Keywords: temporary contracts, unemployment, Great Recession
JEL Classification: H29, J23, J38, J41, J64
Date posted: November 29, 2010
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