Export or Perish: Can Internal Devaluation Create Enough Good Jobs in Southern Europe?

ABSTRACT

During the early 2010s, creditor states and EU institutions demanded that the Southern states of the eurozone liberalise their labour markets to facilitate internal devaluation and export-led recoveries. With some variation, the Greek, Portuguese, Spanish and Italian governments complied. This article explains why such a strategy of internal devaluation within the eurozone might fail to produce adequate employment growth to put these countries on stable financial footing. It exploits variation in the timing and intensity of reforms to evaluate the record of the internal devaluation strategy. Our findings suggest that there is no linear relationship between internal devaluation and export-growth. Even where the latter has been impressive, dualism persists and the employment recovery has been weak.

KEYWORDS:

• Labour market reform
• precarious employment
• growth models
• export-led growth
• Greece
• Italy
• Portugal
• Spain

Acknowledgments

Earlier versions of this paper were presented at conferences and seminars in Florence, Lake Como, Boston, Groningen, and Madrid. The authors would like to thank participants for their comments. Furrthermore, they are particularly indebted to Alexandre Afonso, David Luque Balbona, and two anonymous referees for detailed suggestions. Research for this article was supported by the Reconciling Economic and Social Europe project funded by the European Research Council (Advanced Grant no. 340534), led by Maurizio Ferrera, and by the Project Democracy in Times of Crisis: Power and Discourse in a Three-Level Game (PTDC/IVCCPO/2247/2014), led by Catherine Moury.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. For instance, the theory and evidence on the relation between employer protection legislation and training provided by firms are ambivalent. Dolado, Ortigueira and Stucchi (2016) have shown that labour market reforms expanding temporary employment in Spain have resulted in employers providing less training. In contrast, Sulis, Bratti and Conti (2018) have found that higher levels of employment protection reduce firms’ incentives to invest in workers’ training, while another paper by the same authors (Bratti, Conti & Sulis 2018) has concluded that firms provided more training after the Fornero reform that lowered employment protection.

2. The OECD Employment Protection Legislation indices cannot capture all the subtleties of labour market regulation, as these often depend on how different aspects of labour law interact in each country. For this and other reasons, it is changes in (rather than levels of) the indices that are most revealing.

3. Note that job creation and job destruction take place simultaneously at all times. The difference between the two is ‘net job creation’ (or, when it is negative, ‘net job destruction’). Note also that, strictly speaking, since it is possible for a worker to hold more than one job at the same time, changes in the number of workers in employment (as reported in the text) need not be identical to changes in the number of jobs.

4. Since the size of South European workforces has changed significantly (and differently) in recent years, the number of workers employed (or, arguably, of hours worked) is a better indicator of job growth than the employment (or unemployment) rate. The decline in fertility is one reason for that. The rise of migration out of Southern Europe is another. The combination of both, and with migration into Southern Europe, has resulted in shrinking populations in Greece and Portugal (by −3.3 per cent and −2.5 per cent respectively in 2010–17), and a stagnant population in Spain (+0.1 per cent over the same period). In Italy, the effect of immigration more than offset that of emigration and low fertility (+2.4 per cent in 2010–17). In the EU as a whole, the population grew by 1.7 per cent over the period.

5. Income inequality also increased in the 2008–13 period, except in Portugal. Looking at both the Gini coefficient and the S80/S20 income quintile share ratio (the latter measuring the disposable incomes of the richest 20 per cent as a multiple of the incomes of the poorest 20 per cent of the population), shows that in the 2013–17 period inequality developed differently in each country: it kept rising in Spain, remained close to its crisis peak in Italy, fell towards its 2008 level in Greece, and continued its downward trend in Portugal.

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Notes on contributors

Sofia A. Perez

Sofia A. Perez is a political economist at Boston University. Her work centers on exploring the politics of regulatory change in Europe. She is the author of numerous articles on the relationship between financial, monetary and wage regulation, as well as on immigration and social policy in EU member states. Her current work focuses on the consequences of monetary union in Southern Europe.

Manos Matsaganis

Manos Matsaganis is a Professor of Public Finance at Polytechnic University of Milan. He has published several papers on a variety of topics in peer-reviewed journals and edited volumes. His recent research has focused on the distributional implications of the eurozone crisis, the political economy of austerity in Southern Europe, and the effects of the minimum wage on employment, earnings and poverty.