Partial deregulation and horizontal inequality in Spain

Abstract

This article explains why the deregulation policy implemented in Spain from 1984 onwards generated important inequalities amongst workers of equivalent productivity. To this end, the paper reviews the existing evidence on the distribution of individual labour market opportunities from 1984 to 1997, the time-period during which segmentation by type of contract was consolidated in Spain. These data are complemented with new evidence based on the 'chained' version of the Spanish Labour Force Survey. The main idea of this article is that the introduction of temporary contracts in an institutional context characterised by high dismissal costs for standard employment and a collective bargaining system that is ill-suited for an inclusive representation of interests generated two distinctive micro-level mechanisms: the so-called buffer and incentive effects. Both effects combined can account for the strong process of labour market segmentation observed in Spain between 1984 and 1997.