DP8691 Reforming an Insider-Outsider Labor Market: The Spanish Experience

Author(s): Samuel Bentolila, Juan J. Dolado, Juan F Jimeno
Publication Date: December 2011
Keyword(s): dualism, Great Recession, labour market reform, political economy, temporary contracts
JEL(s): H29, J23, J38, J41, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8691

This paper presents a case study on reforming a very dysfunctional labour market with a deep insider-outsider divide, namely the Spanish case. We show how a dual market, with permanent and temporary employees makes real reform much harder, and leads to purely marginal changes that do not alter the fundamental features of labour market institutions. While the Great Recession and the start of the sovereign debt crisis triggered two labour reforms, the political economy equilibrium has not allowed them to be transformational enough.