Distributional Implications of Labor Market Reforms: Learning from Spain's Experience
IMF Working Papers, February 13, 2020
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- Distributional Implications of Labor Market Reforms: Learning from Spain's Experience
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Bibliographic details
- Authors: Ara Stepanyan, Jorge Salas
- Published: February 13, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513526874.001
Background
- Spain implemented structural reforms around 2012 aimed at restoring competitiveness and supporting job creation.
- Prior evidence indicates the 2012 labor market reforms increased wage flexibility and contributed to a faster and stronger economic recovery.
- The specific distributional effects—on income inequality and social inclusion—had received limited analysis prior to this paper.
Methodology
- The paper employs an econometric decomposition procedure combined with the synthetic control method to isolate the reforms' distributional impacts.
Key Findings
- The 2012 labor market reforms:
- Helped improve employment outcomes.
- Helped improve income equality outcomes.
- Had no substantial impact on the overall risk of poverty.
- Appeared to induce a deterioration of average hours worked.
- Appeared to induce a deterioration of in-work poverty.
- Possibly induced a deterioration of involuntary part-time employment.
Policy Implications and Interpretation
- Reforms that enhance wage flexibility can aid competitiveness and job creation while producing mixed distributional effects.
- Improvements in employment and income equality do not automatically translate into reductions in in-work poverty or increases in average hours worked.
- Policymakers should consider complementary measures to address:
- Deterioration in average hours worked.
- Rising in-work poverty.
- Potential increases in involuntary part-time employment.
- Combining labor market flexibility with targeted social or labor policies could help preserve equity outcomes while sustaining gains in employment and competitiveness.
IMF Working Paper by Ara Stepanyan and Jorge Salas, February 13, 2020.
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