Internal devaluation in a wage-led economy. The case of Spain

dc.contributor.authorÁlvarez, Ignacio
dc.contributor.authorUxó, Jorge
dc.contributor.authorFebrero, Eladio
dc.description.abstractThe aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an exportled strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016.
dc.description.facultyInstituto Complutense de Estudios Internacionales
dc.identifier.citationAuerbach, A., and Gorodnichenko, Y. 2012a. ‘Measuring the Output Responses to Fiscal Policy’, American Economic Journal: Economic Policy, 4: 1-27. Auerbach, A., and Gorodnichenko, Y. 2012b. ‘Fiscal Multipliers in Recession and Expansion’, in A. Alesina and Giavazzi, F. (Eds.), Fiscal Policy after the Financial Crisis, University of Chicago Press. Bank of Spain. 2015. ‘Competitive adjustment and recovery in the Spanish economy’, Annual Report 2015, Bank of Spain. Bank of Spain. 2012a. ‘Competitiveness indicators: the importance of an efficient allocation of resources’, Economic Bulletin, Issue January 2012, Bank of Spain. Bank of Spain. 2012b. ‘The import content of the industrial sectors in Spain’, Economic Bulletin, Issue April 2012, Bank of Spain. Bhaduri, A. and Marglin, S. 1990. ‘Unemployment and the real wage - The Economic-Basis for contesting political ideologies’, Cambridge Journal of Economics, vol. 14 (4). Blecker, R. 2016. ‘Wage-led versus profit-led demand regimes: the long and the short of it’, Review of Keynesian Economics, Volume 4 (4). Cruces,J., Alvarez, I. Trillo, F. and Leonardi, S. 2015. “Chapter 3: Impact of the euro crisis on wages and collective bargaining in southern Europe – a comparison of Italy, Portugal and Spain”, in Van Gyes, G. and Schulten,T. (2015): Wage bargaining under the new European Economic Governance Alternative strategies for inclusive growth, European Trade Union Institute (ETUI), Brussels. Doménech, R., García, J.R. and Ulloa, C. 2015. ‘The effects of wage flexibility on activity and employment in the Spanish economy’, Working paper Nº 16/17, November 2016, BBVA Research. Ederer, S. and Stockhammer, E. 2007. ‘Wages and aggregate demand in France: An empirical investigation’ in Hein, E. and Truger, A. (eds), Money, Distribution, and Economic Policy – Alternatives to Orthodox Macroeconomics, Cheltenham: Edward Elgar. European Commission. 2016. Country Report Spain 2016. Commission Staff Working Document, Brussels, 26.2.2016 Felipe, J. and Kumar, U. 2011. ‘Unit Labour Costs in the Eurozone: The Competitiveness Debate Again’, Working Paper 651, Levy Economics Institute of Bard College, Nueva York. Gerchert, S. and Rannenberg, A. 2014. “Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis”, IMK Working Paper, 139. Goretti, M. and Souto, M. 2013. ‘Macro-Financial Implications of Corporate (De)Leveraging in the Euro Area Periphery’, IMF Working Paper 13/154, International Monetary Fund. Hartwig, J. 2014. ‘Testing the Bhaduri–Marglin model with OECD panel data’, International Review of Applied Economics, 28(4). Hein, E. 2016. Post-Keynesian macroeconomics since the mid-1990s – main developments, Institute for International Political Economy Berlin, Working Paper, No. 75/2016. Hein, E. 2012. ‘Finance-dominated Capitalism, Re-distribution, Household Debt And Financial Fragility In A Kaleckian Distribution And Growth Model’, PSL Quarterly Review, 65(260). Hein, E. and Vogel, L. 2008. ‘Distribution and growth reconsidered: empirical results for six OECD Countries’, Cambridge Journal of Economics, vol. 32 (3). Lavoie, M. and Stockhammer, E. 2013. Wage-led Growth. An Equitable Strategy for Economic Recovery, Palgrave Macmillan and ILO. Martínez, J. and Zubiri, I. 2014. ‘Los multiplicadores de la política fiscal en España’, Papeles de Economía Española, nº 139, abril 2014. Molero-Simarro, R. 2015. ‘Functional distribution of income, aggregate demand, and economic growth in the Chinese economy, 1978–2007’, International Review of Applied Economics, vol. 29 (4) Naastepad, C.W. and Storm, S. 2006. ‘OECD demand regimes (1960-2000) ‘, Journal of Post Keynesian Economics, vol. 29 (2). Nishi, H. 2012. Structural VAR analysis of debt, capital accumulation, and income distribution in the Japanese economy: a Post Keynesian perspective. Journal of Post Keynesian Economics, 34(4). OECD. 2013. The 2012 Labour Market Reform In Spain: A Preliminary Assessment, OECD, December 2013, Onaran, O. and Galanis, G. 2012. ‘Is aggregate demand wage-led or profit-led? National and global effects’, Conditions of Work and Employment Series N.40, International Labour Organization. Onaran, O and Obst, T. 2016. ‘Wage-led growth in the EU15 member-states: the effects of income distribution on growth, investment, trade balance and inflation’, Cambridge Journal of Economics, Vol 40 (6). Onaran, O. and Stockhammer, E. 2016. ‘Policies for Wage-Led Growth in Europe’, FEPS Policy Report February 2016, Foundation for European Progressive Studies. Onaran, O. and Stockhammer, E. 2005. ‘Two different export-oriented growth strategies –Accumulation and distribution in Turkey and South Korea‘, Emerging Markets Finance and Trade, vol. 41 (1) Onaran, O., Stockhammer, E. and Grafl, L. 2011. ‘Financialisation, income distribution and aggregate demand in the USA‘, Cambridge Journal of Economics, vol. 35 (4) Palley, T. 1994. ‘Inside debt, aggregate demand, and the Cambridge theory of distribution’, Cambridge Journal of Economics, Volume 20 (4). Rada, C. and Kiefer, D. 2016. ‘Distribution-Utilization Interactions: A Race-to-the-Bottom Among OECD Countries’, Metroeconomica 67 (2). Schulten, T. 2012. ‘European minimum wage policy: A concept for wage-led growth and fair wages in Europe’, International Journal of Labour Research, Vol. 4 (1). Stockhammer, E. 2015. ‘Wage-led versus Profit-led Demand: What Have we Learned? A Kalecki-Minsky View’, Post Keynesian Economics Study Group Working Paper 1512, December 2015. Stockhammer, E. and Onaran, O. 2012. ‘Wage-Led Growth: Theory, Evidence, Policy’, PERI Working Paper Series 300, Political Economy Research Institute. Stockhammer, E. and Sotiropoulos, D. 2014. ‘Rebalancing the Euro area: the costs of internal devaluation’, Review of Political Economy 26 (2). Stockhammer, E., and Stehrer, R., 2011. ‘Goodwin or Kalecki in demand? Functional income distribution and aggregate demand in the short run‘. Review of Radical Political Economics 43(4) Stockhammer, E. and Wildauer, R. 2016. ‘Debt-driven growth? Wealth, distribution and demand in OECD countries’, Cambridge Journal of Economics, Vol 40 (6). Stockhammer,E., Hein, E. and Grafl, L. 2011. ‘Globalization and the effects of changes in functional income distribution on aggregate demand in Germany‘, International Review of Applied Economics, vol. 25 (1) Stockhammer, E., Onaran, O. and Ederer, S. 2009. ‘Functional Income Distribution and Aggregate Demand in the Euro Area‘, Cambridge Journal of Economics, vol. 33 (1) Uxó, J.; Febrero, E. and Bermejo, F. 2016. ‘Crisis, unemployment and internal devaluation in Spain’ in Myant, M. Theodoropoulou, S. and Piasna, A. 2016. Unemployment, internal devaluation and labour market deregulation in Europe, European Trade Union Institute, Brussels. Uxó J., Paúl J. and Febrero E. 2014. ‘Internal devaluation in the European Periphery: the story of a failure’, Working Papers DT 2014/2, Albacete, University of Castilla–La Mancha. Vasudevan, R. 2016. ‘Finance and Distribution: Revisiting Profit-led and Wage-led Growth’, 13th International Post Keynesian Conference, University of Missouri - Kansas City.
dc.publication.placePozuelo de Alarcón. España
dc.publisherInstituto Complutense de Estudios Internacionales (ICEI)
dc.relation.ispartofseriesWorking Papers
dc.rightsAtribución-NoComercial 3.0 España
dc.rights.accessRightsopen access
dc.subject.keywordWage share
dc.subject.keywordBhaduri-Marglin model
dc.subject.keywordParticipación salarial
dc.subject.keywordModelo de Bhaduri-Marglin
dc.subject.ucmCrisis económicas
dc.subject.unesco5307.06 Fluctuaciones Económicas
dc.titleInternal devaluation in a wage-led economy. The case of Spain
dc.typetechnical report
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
WP 05-17.pdf
982.29 KB
Adobe Portable Document Format