How Do the Skilled and the Unskilled Respond to Regional Shocks? The Case of Spain



Spain is characterized by large and persistent geographic unemployment
differences, which suggest that the labor market adjusts exceedingly slowly to
past shocks. The present study argues that under current labor market
arrangements there is no tendency for geographic unemployment differences to be
reduced in the period ahead. In particular, the current wage-bargaining system
tends to yield uniform wage increases across the country, regardless of local
labor market conditions. With similar real wages and unit labor costs in
high-unemployment and low-unemployment areas, neither workers nor capital have
sufficient .price. incentives to move.

This study also analyzes how workers with different skill levels respond to
local labor demand shocks. That question is addressed using a unique data set
on working-age population, labor force, and employment for five educational
groups (ranging from the illiterate to the college-educated) over 1964-92 for
the 50 Spanish provinces. The high-skilled are found to migrate very promptly
in response to a decline in local labor demand, whereas the low-skilled drop
out of the labor force or stay unemployed for a long time. In other words, the
results suggest that labor market adjustment is particularly sluggish among the
low-skilled. Therefore, labor market and other structural policies should
devote particular attention to promoting the mobility of the low-skilled.