Scandinavian Working Papers in Economics

Working Paper Series, Center for Labor Studies,
Uppsala University, Department of Economics

No 2012:12: The Ins and Outs of Unemployment in a Two-Tier Labor Market

José I. Silva () and Javier Vázquez-Grenno ()
Additional contact information
José I. Silva: Campus de Montilivi, 17071 Girona, Spain
Javier Vázquez-Grenno: Av. Diagonal 690, 08034 Barcelona, Spain

Abstract: This paper aims to shed some light on the dynamics of the Spanish labor market, using data from the Spanish Labor Force Survey for the period 1987 to 2010. We examine transition rates in a three-state model and compare our results with those re- ported for the UK and the US. Explicitly introducing the employment duality present in the Spanish labor market, we study labor market dynamics in a four-state model set-up. We also analyze the behavior of these rates within two sub-periods of recession and a further two sub-periods of boom. We provide evidence of the cyclicality of the transition rates using unconditional and conditional correlations. Finally, we compute the contribution of the di erent transitions to unemployment rate volatility. Our over- all conclusion points out that the employment duality is the key to understand the unemployment volatility and the functioning of the Spanish labor market.

Keywords: job finding rate; job separation rate; unemployment

JEL-codes: E24; E32; J60

24 pages, May 25, 2012

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