Labor Market, Wages and Crisis

Abstract

One method for explaining the crisis in Spain is looking to the sphere of income distribution. Given the peripheral insertion of Spain in the Eurozone, there are peculiarities that have given rise to opposing theories. Thus, orthodox economists blame the labor market rigidity for the excessive increase in wage costs, which would have caused higher inflation and loss of business competitiveness. But interestingly, Keynesian-inspired economists argue on the contrary that low wages are responsible for the speculative bubble due to the demand problem. Although seemingly contradictory, the author not only emphasizes that both explanations share common aspects, but empirically demonstrates that the cause of the crisis is not found in the wage determination. Spanish wages ultimately depend on the process of capital valorization, as the comparison with the Eurozone clearly reveals.