ABSTRACT
The Portuguese and Spanish labour markets have recently become the object of great interest among economists. Indeed, in a widely cited article, Blanchard and Jimeno argue that high unemployment in Spain and low unemployment in Portugal ‘may be the biggest empirical challenge facing theories of structural unemployment’ (Blanchard and Jimeno 1995: 212–18). The puzzle over the two countries’ drastically different unemployment rates emerges because labour market policy in Spain and Portugal is regularly classified as not only highly similar, but also as amongst the most rigid in the OECD. Explaining how rigid and rather similar labour market policies have produced these different unemployment outcomes has been the underlying question animating most economists’ investigations of the Iberian labour markets (Bank of Portugal 1997).
