Real Wage Responsiveness to Unemployment in Spain : Asymmetries Along the Business Cycle

We estimate real wage cyclicality in the period between 1987 and 2013 using a large administrative dataset of workers in Spain. Real wages are weakly procyclical in Spain and, focusing on different phases of the business cycle, we find significant differences between expansions and recessions, with even lower real wage cyclicality in recessions. Furthermore, higher levels of unemployment do not translate into additional real wage adjustments when the economy is contracting, while lower levels of unemployment during expansions have incremental effects on wage elasticity. This general result holds after accounting for differences in tenure, type of contract and age. Nevertheless, wages of newly hired workers are the most sensitive to the business cycle and exhibit the lowest asymmetric pattern between expansions and recessions. At the other end of the scale, wages of workers with more than six years' tenure provide the most protection against economic downturns. The same is true for fixed-term vs. permanent workers and for young vs. older workers