Countercyclical Labor Productivity: The Spanish Anomaly

Abstract

The cyclical pattern of labor productivity has been a subject of discussion in the economic literature for long time with important theoretical implications.Many authors point out the role of labor market institutions as determinants of the cyclical pattern. For these authors, the loss of procyclicality experimented in the United States since the mid-1980s could be explained by a decrease of rigidities in labor market. Following the literature, this paper explores the role of labor regulation by analyzing the case of Spain, which has gone in a few years from a strongly procyclical pattern to a countercyclical one.

Our results suggest that the high rigidity in wages and the great flexibility in labor, related to the temporary workers after the 1984 legislative reform, is the main cause of the countercyclical pattern of the Spanish labor productivity. Our findings are in line with previous papers highlighting the crucial influence of labor market institutions over the cyclical pattern.

Keywords: Business cycle, labor productivity, labor regulation, multifactor productivity.

JEL Classification: E32, J30, K31, O47