Wage flexibility and employment resilience in the Spanish labour market over the Great Recession

Abstract

The Spanish economy is characterized by significant and persistent regional disparities. The Great Recession caused a severe economic downturn, marked by declining wages and rising unemployment, influenced by the internal wage devaluation policies. We investigate the relationship between wage flexibility and regional labour market resilience. We estimate a spatial panel wage curve using microdata from social security records for the period 2002-19 using geographical and time weighted regression techniques. Our findings reveal that regions with higher wage flexibility exhibit higher resilience recovery indices, highlighting the importance of wage flexibility as a short-term adjustment mechanism in response to labour market shocks.