Regional labour markets in Spain: Can flexibility and local democracy reduce inefficiencies?

By applying a stochastic production frontier approach, this paper investigates regional inefficiencies of job creation in Spain over the period 2006–2012. This paper represents a first attempt to test whether a more flexible labour market as designed by the 2010 reform reduces regional inefficiencies. Results suggest that the 2010 reform appears to have improved on average the efficiency of the Spanish labour market even if regional differences persisted over time. The paper also investigates the importance of local democracy for the labour market finding that local democracy positively influences regional efficiency.