A Note on Changes in the Earnings and Unemployment Structures in Spain Evidence from the Luxembourg Income Study

This note tests whether the extraordinary rise in Spanish unemploymentin the 1980s can be traced back to rigidities in the earningsstructure in the face of relative net demand shocks againstthe unskilled (this claim is also known as the "Krugman hypothesis").I can establish that youth joblessness is key to the Spanishunemployment problem, but sampling procedures in the data setmake it impossible to track the youth unemployment problem acrosstime in a satisfactory way. Even though high youth unemploymentis consistent with the Krugman hypothesis, substantial skillupgrading of the Spanish labour force in the 1980s explainswhy the low education groups did not experience an increasein relative unemployment. (JEL J21, J31, J64)