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Economic growth from the aggregate demand side: What drives the macrodynamic in Mediterranean countries?
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The aim of this paper is to analyse institutional change in the Spanish labour market in from a historical perspective, particularly regarding two main areas: labour regulation and collective bargaining. The main thesis is that it is possible to identify four main stages. Firstly, there was an institutional structure unfavourable to workers, which was overcome by the agency of the labour movement in the period of the so-called desarrollismo (1960-1975). Secondly, the years of transition from dictatorship to democracy (1976-1983) were a period of labour market regulation. Thirdly, there was a period of labour market dualism (1984-1996) based on the application of flexibility at the margin in the face of veto power. This was followed by deregulation (1997-2019), which was a consequence of the weakening of power resources resulting from the previous labour market segmentation.
Purpose
This study aims to analyse the institutional changes in the Spanish labour market in the light of the measures introduced to support workers during the COVID-19 crisis. Applying the theoretical framework the authors’ hypothesis is that the labour policy response to the crisis provoked by COVID-19 in Spain has ranged from strategy of preservation of the social democratic coalition to the anti-bourgeois bloc coalition with a greater presence of social pacts and the support of the social partners.
Design/methodology/approach
Combining the institutional theory of liberalisation trajectories, the four ideal-typical reform strategies and the social pacts literature, the authors analyse the change in the labour market policy orientation during the COVID-19 economic crisis in Spain.
Findings
In comparison to the Great Recession labour policy response, short-time work schemes and new benefits have characterised the 2020 labour policy strategy. Then, the labour policy response has oscillated between, on the one hand, a strategy of preservation of the social democratic coalition, which is characterised by measures to protect workers on the margins of the labour market without affecting the discretionary power of employers. On the other hand, a strategy of the anti-bourgeois bloc coalition, reflected in the employment safeguard clause that attempts to limit both external numerical flexibility and the increase in unemployment. Finally, the authors have analysed whether the labour policies after the COVID-19 crisis constitute a new round of social pacts in Spain and how this took place. They conclude that the main measures approved in the area of employment protection have been supported by social pacts and the social partners (trade unions and employers), as reflected in the signing of the Social Agreement in Defence of Employment (ASDE).
Originality/value
To the best of the authors’ knowledge, this is a significant contribution as it is the first article to point out that the labour policy represents a change in the trajectory of liberalisation, limiting the discretionary power of employers and re-regulating the labour market. The main measure of (re)regulation has been to safeguard employment and to avoid objective or unfair dismissals, which is the traditional form of adjustment. In other words, internal numerical flexibility has been promoted over external flexibility, thus significantly modifying the orientation of labour policy. Finally, the authors have found that social pacts have allowed for greater institutional coherence between legal changes and the behaviour of employers and workers.
The dominant interpretation of Italian economic stagnation in the last decades is that this is due to insufficient liberalisation, but an alternative explanation emphasises the unintended consequences of Italy's strategy of tying itself to the European mast (‘external constraint’). Based on historical reconstructions of three policy areas, public debt management, privatisation, and labour market policy, this paper seeks to adjudicate between these two rival accounts. It argues that insufficient liberalisation fails to explain the Italian trajectory. The external constraint does a better job of explanation, but more as a necessary condition for stagnation than as a sufficient one. In other words, it would probably have been possible to manage the external constraint differently to produce better outcomes, but without the external constraint, the Italian stagnation would likely have been less deep.
Despite being one of the world's major internationally traded services, tourism remains neglected within debates on European integration and growth models. We highlight the rise of tourism-led growth in Southern Europe. We argue that the process of European integration has been a double-edged sword, simultaneously incentivizing and forcing Southern European economies to reap their comparative advantage in tourism. While European integration has created the preconditions for the expansion of intra-European tourism, monetary integration pre-empts macroeconomic management. Since the Eurozone crisis, internal devaluation and fiscal austerity have suppressed the domestic growth drivers, inducing these governments towards an export-led growth strategy. We document the emergence of unprecedented tourism-related current account surpluses in Southern Europe, driven strongly by tourism imports from the EMU-core countries and the UK. Thus, while different types of export-led growth strategies now coexist in the EMU, Southern Europe's excessive reliance on international tourism for growth comes with severe pitfalls.
During the early 2010s, creditor states and EU institutions demanded that the Southern states of the eurozone liberalise their labour markets to facilitate internal devaluation and export-led recoveries. With some variation, the Greek, Portuguese, Spanish and Italian governments complied. This article explains why such a strategy of internal devaluation within the eurozone might fail to produce adequate employment growth to put these countries on stable financial footing. It exploits variation in the timing and intensity of reforms to evaluate the record of the internal devaluation strategy. Our findings suggest that there is no linear relationship between internal devaluation and export-growth. Even where the latter has been impressive, dualism persists and the employment recovery has been weak.
Comparative political economy (CPE) has robustly examined the political and institutional determinants of income inequality. However, the study of wealth, which is more unequally distributed than income, has been largely understudied within CPE. Using new data from the World Income Database (WID), this article examines how economic, political and institutional dynamics shape wealth-to-income ratios within Western European and OECD countries. It is found that the political and institutional determinants that affect income inequality have no short- or long-run effects on the wealth-to-income ratio. Rather, the rise in wealth-to-income ratios is driven by rising housing prices, as well as price changes in other financial assets, not home ownership or national saving rates. The article concludes by examining how the changing dynamics of housing prices and wealth inequality will increasingly shape intergenerational – and associated class-based – political conflict in Western Europe.
This study proposes a taxonomy of sectors according to the extent to which they have
gone digital. The taxonomy accounts for some of the key facets of the digital
transformation, and recognises that sectors differ in their development and adoption of
the most advanced “digital” technologies, in the human capital needed to embed them in
production and in the extent to which digital tools are used to deal with clients and
suppliers. The indicators used to classify 36 ISIC revision 4 sectors over the period 2001-
15 are: share of ICT tangible and intangible (i.e. software) investment; share of
purchases of intermediate ICT goods and services; stock of robots per hundreds of
employees; share of ICT specialists in total employment; and the share of turnover from
online sales.
Some sectors (e.g. telecom and IT services) are positioned consistently at the top of the
distribution of sectors, independently of the indicator used, while others are positioned in
the bottom quartile of digital intensity across all available indicators (e.g. agriculture,
mining and real estate). This is true for the classification of sectors based on both 2001-
03 and 2013-15 data. Sectors positioned in the middle, instead, differ across indicators,
suggesting that they are engaged in the digital transformation at different rates,
depending on the dimensions considered.
The study further proposes an overall summary indicator of the digital transformation in
sectors which encompasses all the considered dimensions. Preliminary results suggest
that this summary indicator performs reasonably well in approximating sectors’
intensities in the different dimensions of the digital transformation.
Europe’s response to the sovereign debt crisis in Southern Europe has been premised on the idea that these states can return to growth through internal devaluation and fiscal consolidation. This article explores the distributive consequences of that strategy in Greece, Portugal, Italy, and Spain. We argue that standard measures of poverty do not capture the deterioration in living standards as fully as anchored poverty. Moreover, we show that inequality trends conceal considerable re-ranking within the income distribution: those who were rich in 2012 had got richer in 2009–12, but those who were rich in 2009 lost ground in 2009–12. We find that in all four countries the new poor include significantly fewer pensioners and more unemployed workers, and are considerably poorer than the old poor had been. We demonstrate that there was significant variation in the magnitude and design of austerity, with Italy imposing a far smaller adjustment than Spain, and Portugal achieving less inequality in spite of robust fiscal consolidation. Nevertheless, even when austerity measures were designed to reduce inequality by compressing incomes downward, their second-order macro-economic effects ultimately increased inequality (except in Portugal). In the last section, we explore the political reasons for this variation.
The aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an export-led strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016. JEL codes: E24, E25, E64
This paper develops an analytical approach to comparative political economy that focuses on the relative importance of different components of aggregate demand—in the first instance, exports and household consumption—and dynamic relations among the “demand drivers” of growth. We illustrate this approach by comparing patterns of economic growth in Germany, Italy, Sweden, and the United Kingdom over the period 1994–2007. Our discussion emphasizes that export-led growth and consumption-led growth have different implications for distributive conflict.
This paper focuses on the vertical integration of knowledge-intensive business services (KIBS) into manufacturing sectors, using a subsystem approach to input–output analysis. It aims at correctly assessing the process of structural change that has occurred in the four main European countries (France, Germany, Italy and the UK) over time (1995–2005). It does not focus on KIBS sectors per se, but on their function as carriers and sources of knowledge which influences the performance of sectors, value chains and clusters across industries and within countries. The analysis shows that KIBS’ contribution to satisfying the final demand of manufacturing is in general largely underestimated; that KIBS vertical integration into manufacturing has increased over time in all the countries investigated except the UK; and that the extent to which manufacturing sectors outsource to KIBS is significantly affected by their technological intensity.
The global financial crisis deeply impacted labour markets around the globe. In the case of the United States, some commentators have argued that the subsequent rise in unemployment exceeded previous estimates of the elasticity of the unemployment rate with respect to output growth, a statistical relationship known as Okun’s law. In contrast, others find a stable, long-term estimate of Okun’s coefficient implying that the deviation in unemployment during the crisis resulted from a larger output gap (not a structural shift in the trend). Ultimately, estimates of this relationship will depend on the methodology and data period utilized. Focusing more on short-term fluctuations, changes in unemployment are decomposed to identify the association with other channels of labour market adjustment (hours, productivity and labour force). Results presented in this paper confirm the cross-country variation in the responsiveness of unemployment in the wake of the Great Recession. In the United States, Canada, Spain and other severely affected economies, estimates of Okun’s coefficient increased sharply, departing from pre-crisis levels. In other countries, where unemployment has remained subdued, such as Germany and the Netherlands, the coefficient has fallen dramatically over the short-term. While other factors can explain the heterogeneous impact of the global financial crisis on labour markets in OECD countries, this paper focuses on the contribution of labour market institutions (employment protection legislation) in explaining cross-country differences and shifts in the estimated Okun’s coefficient. In this regard, empirical evidence confirms that the responsiveness in the unemployment rate during the global downturn was lower in countries where workers are afforded greater employment protection such as Germany.
JEL codes
E24, J64, G01
This article presents an analysis of the postindustrial economy from a political economy perspective. It identifies a set of specific distributional trade-offs associated with the new role played by the services sector as the chief source of employment growth in advanced democracies over the last three decades. It is argued that three core policy objectives—budgetary restraint, wage equality, and expansion of employment—constitute a political “trilemma” that allows only two of the goals to be successfully pursued at the same time. Using a combination of statistical and caseoriented analysis, the authors demonstrate the political and economic salience of the trilemma, the distributional tensions inherent in each strategy to cope with it, and the political-institutional constraints under which these strategies are chosen.
Following the onset of the Eurozone crisis, Mediterranean economies (Greece, Italy, Portugal, Spain) followed the example set by Germany, implementing structural reforms with the aim of restraining labor costs and transitioning to export-led growth. Using input–output tables, this paper analyzes the role of labor costs and nonprice factors in the export performance of the manufacturing sectors in these Mediterranean economies and in Germany. We estimate an export model taking subsystems as units of analysis, permitting us to consider how the productive linkages between manufacturing and services affect export growth. Our results show that the effect of labor costs on export performance has been negligible in these five economies, while non-price factors stand out as the main drivers of export growth. In addition, we find that the development of stronger linkages between knowledge-intensive business services (KIBS) and manufacturing provides a substantial stimulus for non-price competitiveness.
This study examines the impact of the expansion of the service sector on labour productivity growth in 10 developed economies, reaching back to the late 1970s. The main research novelty is that it combines both Kaldorian and Baumolian insights to develop a new shift‐share decomposition that, consistent with Kaldorian theory, endogenises productivity growth at the industry level with respect to structural change, and, consistent with the Baumolian framework, includes the impact that arises from the cumulative reallocation of nominal output and employment. Our results show that tertiarisation leads to a gradual decrease in productivity growth in most of these economies.
Since 2014 the Spanish economy has recovered positive GDP growth, and the country has
been growing well above the eurozone average. This recovery has sparked an academic and political debate concerning the role that structural reforms, prescribed by the ‘Troika,’ have played in peripheral Europe. For certain scholars and institutions, these structural reforms have allowed the market, through greater wage flexibility, to make the necessary adjustments to restore economic growth, resulting in a ‘healthy’ economic recovery. But to
what extent is this mainstream narrative solidly backed up by the empirical evidence?
Can Spain be held up as an international example of the ‘success’ of these reforms?
The aim of this paper is to shed light on this debate. We consider that labor market reforms and wage devaluation policy are not the drivers of economic recovery. Instead, we offer an alternative explanation for recovery based on the theory of demand-led growth.
Purpose
This paper studies one of the most paradoxical facts of the Spanish economic growth during the period 1982–2007: high growth of investment and aggregate demand accompanied by the stagnation of labor productivity, especially from 1994.
Design/methodology/approach
The authors propose two hypotheses: first, that the productive structure neutralized the mechanisms that link investment with productivity, essentially due to the low capital efficiency of the job-creating sectors (JCs); and consequently, investment drove production almost exclusively through employment, generating a trade-off between employment and productivity.
Findings
The econometric results find evidence in favor of both hypotheses applying a time-series methodology (ARIMA) to EU KLEMS data for a period of 25 years and 25 industries of the Spanish economy.
Originality/value
The first contribution of this paper is to offer an interpretation of the phenomenon from a perspective that combines elements of productive supply and aggregate demand, representing a novel contribution to the specialized literature. In addition, the authors show how the Kaldor-Verdoorn law could be neutralized due to employment creation (Okun's law) and the presence of a productivity-employment trade-off.
This paper is aimed at studying the long run relationship between GDP per capita growth and the job “required” by such a growth. This relationship, which has been positive for a long period after World War II, leading to a more equal and wealthy society via the labour market, turned out to be non-positive since the middle of the 1980s, giving rise to the so-called ”Jobless Growth” and “Jobless Recovery” phenomena. By analysing data from STAN databases throughout the period 1970–2015, we found that the break in the relation between GDP per capita growth and employment can be explained by the decoupling between productivity from one hand, and labour compensation and utilisation from the other. Our findings further suggest that different economic sectors specifically contributed to the productivity change in accordance with their technological and knowledge intensity.
We investigate the causes of de-industrialization and potential for re-industrialization using trade-linked input–output data from WIOD. By introducing a new global value chain measure of comparative advantage, we relate a sector's share in domestic final demand to that in production and separate the direct effect of trade on its income share. This method identifies the declining share of manufacturing value added in domestic final expenditures to be the main cause of de-industrialization. Differences in comparative advantage between countries do matter, especially in the case of employment shares, but have a limited impact via the direct trade effect on value added. The findings point to a peculiar paradox of industrial policy: precisely when it is successful in raising competitiveness and hence productivity growth of manufacturing, it also furthers the global decline of relative prices in manufacturing. In contrast to the national objectives of re-industrialization, effective industrial policies accelerate de-industrialization in the global economy.
Based on comprehensive regression analysis, the authors find that weak wage growth and a smaller labour share of national income significantly reduce labour productivity growth. They conclude that supply-side labour market reforms have contributed to reducing labour productivity growth: this cannot be explained by a deregulation-induced inflow of low-productivity labour as proposed by OECD researchers. They also discuss why deregulation, easier firing and higher labour turnover may damage learning and knowledge accumulation in companies, notably by weakening the functioning of the “routinized” innovation model (“Schumpeter II”). Finally, their findings raise doubts about the relevance of Baumol's law and Verdoorn's law.
This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun's Law is a strong and stable relationship in most countries, one that did not change substantiallyduring the Great Recession. Accounts of breakdowns in the Law, such as the emergence of "jobless recoveries," are flawed. We also find that the coefficient in the relationship-the effect of a one percent change in output on the unemployment rate-varies substantially across countries. This variation is partly explained by idiosyncratic features of national labormarkets, but it is not related to differences in employment protection legislation.
This article confirms that labour productivity in the European economies has continued to slow down in recent years. U.S. productivity growth has been higher than in the EU, but only since 2001. At the same time, both economies have modified previous employment performance: EU employment growth is now higher than in U.S. This article proposes that productivity growth be explained by demand dynamics, and investment in particular, not forgetting the influence of employment, along with other factors such as new technologies.
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- E Febrero
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