policymakers demonstrate

European Union Dual Labour Markets 87
0,04
0,02
Spain
0
–0,02
USA
–0,04
–0,06
Q1-1985 Q1-1988 Q1-1991Q1-1994 Q1-1997 Q1-2000
Q1-2003 Q1-2006 Q1-2009
Figure 2.9 Standard deviation of cyclical employment (Spain and US; HP filter,
Bentolila et al., 2012a).
time) when hit by adverse shocks. The same happened in Portugal and Greece
prior to the GR, before their dual EPL systems were dismantled as part of their
memorandums of understanding with the Troika. In contrast, some other EU
countries, like, for example, Germany or UK, with similar or greater declines
in economic activity, suffered considerably smaller reductions in employment
over the GR, basically because of their much lower EPL gaps, higher wage flexibility
and less dependent sectoral specialization on low-value added industries.
Indeed, before 2010, the EPL gap in Spain between the severance pay of workers
with PC (typically 45 days of wages per year of seniority (d.w.y.s) for unfair
dismissals) and TC (8 d.w.y.s. or even zero in some cases) was quite substantial.
For example, a firm deciding whether to hire a worker on a permanent contract
for five years or five workers on fixed-term contracts of one-year each, would
pay 225 d.w.y.s. (= 5 × 45) in the first case and 40 (= 5 × 8) in the second
case. Furthermore, were the firm to promote a temporary worker to a permanent
position after two years, it would bear again a cost of 225 d.w.y.s. in case of
dismissal in the fifth year, since the corresponding redundancy pay scheme for
PC after the third year also applies to the initial two-year period on TC. Thus
the EPL gap would rise to slightly above half a year of wages (225 − 40 = 165
days) making the firm reluctant to upgrade temporary contracts. To those gaps,
one should add sizeable red-tape cost stemming from the frequent appeals to
labour courts by workers dismissed for fair (economic) reasons to get higher
mandatory redundancy pay for unfair reasons (see Galdon-Sánchez and Güell,