Wage inequality and economic growth. A reassessment of the effects of Francoist developmentalism on income distribution in Spain

Depósito de investigación de la Universidad de Sevilla https://idus.us.es/ “This is an Accepted Manuscript of an article published by Taylor & Francis in Labor Historiy on 2023, available at: https://doi.org/10.1080/0023656X.2023.2182435” Title of article (bold): Wage inequality and economic growth. A reassessment of the effects of Francoist developmentalism on income distribution in Spain Author(s) name(s): Pablo Gutiérrez González Affiliation for each author (university, place): University of Seville, Spain Manuscript ID CLAH: CLAH-2022-0062 Email address (for each author; please identify the corresponding author): [email protected] Full postal address (for each author): Facultad de Ciencias Económicas y Empresariales, Av. Ramón y Cajal, 1, 41018 Seville (Spain) Date of Submission: 16 September 2022 Date of Acceptance: 10 February 2023 Autobiographical sketch (two or three sentences to be published; if a book is mentioned, please provide publisher and year.)) Pablo Gutiérrez González is Assistant Professor in Economic History at the Department of Economics and Economic History. His research has deepened on the long-term performance of financial markets and in recent times he has focused on the quantitative analysis of the role of institutional determinants of the performance of labour markets. He has published the results of his research in The Economic History Review, Business History, Revista de Historia Industrial/Industrial History Review and Enterprise and Society. Acknowledgements (if any) The author is grateful for comments and suggestions provided by the editor and three anonymous referees; however, the normal disclaimer applies. Funding details (if any) The author gratefully acknowledges the financial support received from the Research Project RTI2018-099188-A-I00, funded by the Spanish Ministry of Science, Innovation and Universities 2 Disclosure statement (if any) - Keywords (minimum 4, maximum 7) Inequality; Industrial wages; Francoism; Spain; Income inequality; Industrial relations; Manufacturing Abstract (maximum 220 words, a single paragraph) The relationship between economic development and inequality has been closely examined by researchers. From the seminal work of Kuznets to the more recent work of Piketty, market forces in boom cycles, on the one hand, and institutional action, on the other, have been featured as the main drivers of change in income distribution towards more egalitarian societies. In the Spanish case, previous research has described varied processes with regard to the period of growth that followed the approval of the Stabilisation Plan during the Franco dictatorship (1959-1973). Thus, Alcaide reportedly detected a limited capacity of the developmentalist growth model to reduce inequality, which he attributed to institutional limitations. In contrast, later studies such as Prados de la Escosura have highlighted the decline in inequality during the same period. This paper aims to investigate the effects of this growth cycle by examining the behaviour of wages in the most dynamic sector of the Spanish economy, industry. Specifically, by using the wage survey compiled by the Instituto Nacional de Estadística, the paper nuances previous research and shows how despite explosive growth, the developmentalist model and the peculiar institutional framework built within the Franco dictatorship contributed to increasing wage dispersion and income inequality in most industrial sectors. 1. Introduction The debate on income inequality has been kept alive over recent decades, in terms of both academic discussion and political and social controversy. The relationship between 3 economic growth and inequality is a subject of discussion because of its implications for the design of economic policies. In a seminal work focused on the case of the United States during the first half of the twentieth century, Kuznets (1955) argued that the longterm relationship between economic development and inequality takes the form of an inverted U. Societies become more unequal in their first phases of development, as the remuneration of the production factors of the more technologically advanced sectors becomes more distanced from that of the rest of the economy. When a critical point is reached, having attained a certain degree of maturity, the opposite course towards greater equality is initiated, driven by market forces alone, which leads to the transfer of productivity gains (and, with these, the remuneration of the factors) from the more advanced sectors to the rest of the economy. This long-term dynamic aroused the interest of researchers to such an extent that, since its publication, this thesis has been examined and tested by using data from different countries and historical periods, giving rise to varied and even contradictory results. This state of affairs has prolonged the discussion on the universality of the Kuznets curve up to the present day. 1 More than half a century later, the publication of the studies of Piketty (2013) on the evolution and long-term effects of inequality in modern economies rekindled the debate. 2 Examining the historical experience of the United States and Europe, Piketty indicated the average profitability of capital as the main cause of inequality when this exceeds the GDP growth rate. Thus, the reduction of inequality in the United States in the first half of the twentieth century would have been the result of a fall in the profitability of capital in a context of growth. Likewise, in Piketty’s model, the reduction of inequality in Europe during the golden decades of capitalism can be explained by the institutional 1 For an exhaustive review of the literature, see Martínez-Navarro, Amate-Fortes and Guarnido-Rueda (2020, pp. 706-710). 2 Piketty’s work has aroused controversy, among other reasons, because of the nature of the sources used and the focus of his explanatory model. See McCloskey (2014) for a critical review. 4 mechanisms introduced to limit the profitability of capital and reduce the differences in wages. In other words, progressive tax systems based on the taxation of high incomes, large estates and fortunes and the redistribution of income, control mechanisms for the movement of capital and equality-oriented industrial relations systems based on collective bargaining instruments and free trade unionism. Consequently, contrary to the Kuznets model, Piketty’s questions the real power of market forces to reduce inequality in developed economies and considers institutional action to be the key to the process. However, both approaches deal with long-term phenomena which, due to their scope, encompass macroeconomic processes that transcend the functioning of factor markets. Population movements or changes in the productive fabric, for example, overlap with the transformations that occur in capital income or the wage structure. In fact, to find more specific analyses which relate the performance of the labour market to the evolution of inequality, it is necessary to turn to the studies of Goldin and Margo (1992), Hibbs and Locking (2000) or Collins and Niemesh (2019). According to these authors, the changes in the workforce structure, the dynamics of supply and demand of skilled labour, centralised collective bargaining mechanisms, free unionism and progressive tax systems are identified as the main drivers of change for both income distribution in general and wage inequality in particular. If the interpretation of the link between inequality and development causes difficulties in the countries that pioneered the industrialisation process, this relationship appears to be even more diffuse in less developed economies and late-industrialising countries. Diverse paths can be found in the European periphery, and a greater persistence of inequality once higher levels of development have been achieved. Within this context, the case of Spain is interesting due to its particular historical development. After the political convulsions experienced during a large part of the nineteenth century, the 5 Spanish economy initiated a modernisation process in the 1870s which, during the course of the first third of the twentieth century, laid the foundations of a modern industrial economy (Prados de la Escosura, 2003). However, the effects of the disintegration of the international economy in the 1930s, the outbreak of the Spanish Civil War (1936-39) and the establishment of the dictatorship of General Franco interrupted this path of growth and led to an unprecedented deterioration in all spheres of the productive fabric (Barciela et al., 2001). Only the process of opening up in the 1950s and the subsequent period of modernisation known as ‘developmentalism’ made it possible to return to the path of growth until the onset of the oil crisis (Prados de la Escosura et al., 2012; Calvo-González, 2021). In parallel with this economic evolution, income inequality in Spain has shown equally changeable behaviour in the long term. The first studies of Alcaide (1984; 1999) noted the persistence of high rates of inequality until the end of the 1970s, when these rates began to fall continuously. It was institutional changes such as progressive taxation and income redistribution, implemented throughout the 1980s by means of welfare state policies, that reduced inequality in Spain. Opposing this viewpoint, Prados de la Escosura (2008) conducted a long-term study in which he examined the Spanish experience from 1850 to 2000. As a result, he found a similar pattern to the Kuznets curve, although interrupted by moments of economic and political crisis. Thus, inequality would have increased in Spain during the last third of the nineteenth century and up to the outbreak of the First World War, when it started a protracted fall until the Civil War. From there on, and during the autarkic period, inequality rose again before falling drastically during the 1950s, then more gradually throughout the period of developmentalism and in light of economic growth until the end of the 1970s. Inequality then stalled until the early 1990s, when it began to increase again until the end of the twentieth century. 6 As shown, the results diverge in that they encompass very different economic and demographic transformations. By considering different sources and variables in calculating inequality, these studies take account of long-term processes and structural changes, such as the movement of workers from underdeveloped areas to industrialised regions or the proliferation of employment in the service sector to the detriment of activities such as traditional agriculture, which contribute to reducing income distribution, but transcend the mechanisms that act at labour market level and mould wage inequality. To our knowledge, there is no research that has specifically investigated the behaviour of wage inequality in Spain in the sphere that emerged as the main driver of modernisation of the economy during the developmentalist phase: industry. The aim of this study is to examine the effects of the economic growth of developmentalism on the evolution of wage inequality in industrial sectors. In particular, the goal is to ascertain whether, in the absence of some of the institutional mechanisms present in other European countries, an analogous phenomenon of wage compression occurred in Spain. Moreover, by means of a disaggregated analysis of different branches of activity, this paper aims to identify and explain the possible divergences between the most advanced sectors, whose contribution to growth was clearly much greater, and other less progressive sectors that persisted in their age-old backwardness. To achieve this aim, wage data from the Encuesta de Salarios of the Instituto Nacional de Estadística (wage survey of the Spanish National Statistics Institute) have been used, in order to develop a new database of inequality and wage dispersion in Spanish industry during the period of developmentalism. The rest of the paper is organised as follows. The second section examines the main characteristics of the economic cycle of developmentalism, its institutional constraints and the conditions of income distribution prevailing until the onset of the oil 7 crisis. The third section poses the questions that guide the research and describes the sources and the methodology used to construct the new database. The fourth section presents and describes the results obtained. These results are discussed in the following section, and finally some conclusions are drawn. 2. Developmentalism and the modernisation of the Spanish economy From the outbreak of the Spanish Civil War in 1936, the Spanish economy underwent a long period of decline, brought about not only by the destruction caused during the conflict but also due to the nature of the Franco dictatorship and international isolation. The effects of the Second World War were combined with, and exacerbated by, the economic ideas of the leaders of the new regime. Inspired by the autarkic aspirations of their German and Italian allies, they tried to impose an economic regime that was almost militarised. It was encumbered with regulations in all areas of economic life and directed and supervised by an apparently omnipresent state (Barciela et al., 2001, pp. 33-37). When the World War ended, the Franco dictatorship’s proximity to the Axis powers led to international condemnation and helped isolate the country even further. As a result of these particular circumstances along with a totalitarian conception of economic policy, the Spanish economy entered a long period of stagnation and regression of production and productivity levels, with serious repercussions for the population’s living standards (Prados de la Escosura et al., 2012, p. 48). This dismal evolution was reflected in the distribution of wealth: after two decades of gradual reductions in inequality following the end of the First World War, the Civil War forced a change of trend which only worsened during the 1940s (Prados de la Escosura, 2008, pp. 299-300). The regime’s economic policy, burdened by corruption and hampered by inefficiency, ended up extending a system of privileges that benefited those who were ideologically closer to the regime (Barciela et al., 2001, pp. 147-148). In 8 view of a total absence of redistribution mechanisms and in a context of economic stagnation, inequality soared, both in terms of income and in relation to other indicators associated with living standards, health and well-being, such as height (Alvaredo & Sáez, 2009, p. 1150; Quiroga & Coll, 2000, p. 126; Martínez-Carrión, 2016, p. 19). The design of the industrial relations framework implemented by the dictatorship contributed to these increasing levels of inequality. During the 1940s, an extensive network of control mechanisms to establish working conditions and wages in different industries had been developed (Molinero & Ysàs, 1998). Ministerial ordinances laid down all aspects related to workplace organisation, remuneration and conditions of employment and dismissal in great detail. Nevertheless, despite the intended interventionist paternalism of the dictatorship, the absence of free unions and the mechanisms of labour repression led to an industrial relations system that was markedly asymmetrical, and greatly in favour of employers to the detriment of workers (Toharia, 1986; Babiano, 1995, Vilar, 2003). When the Spanish economy was on the verge of collapse in the early 1950s, the outbreak of the Korean War and the affirmation of the ideological conflict with communism led to a significant realignment of Spain’s position in the world. The pronounced anti-communist nature of the Franco dictatorship paved the way for a rapprochement between Spain and the United States, first by way of cooperation in military matters and subsequently in the form of economic aid (Calvo-González, 2001; 2021; Cavalieri, 2014). This relationship, along with the relative relaxation of the most extreme interventionist measures, helped Spain return to the path of economic growth, although the structural imbalances persisted (Prados de la Escosura et al., 2012, pp. 48- 49). It was in 1959 when, in a critical situation marked by inflationary trends, a plummeting exchange rate of the peseta and a chronic imbalance in the balance of 15 conglomerates: heavy industries and industries with a high technology content, that is, metal industries and the chemical industry; the more labour-intensive light industries, that is, the food, beverages and tobacco industry, textiles and footwear, and printing and publishing. Finally, calculations have been made for industrial activities as a whole. Comparing the evolution of these series, it is intended to differentiate between those sectors where convergence took place and those where it did not, as well as those where there were no appreciable changes during the period, so as to relate this evolution to the elements that determine income inequality. 4. Results During the 1960s, Francoist propaganda emphasised to both international organisations and the Spanish population the idea of broad-based growth and the unstoppable modernisation of the Spanish economic structure. The notion of the ‘Spanish miracle’ was consolidated in view of the country’s spectacular macroeconomic figures, especially from 1960 to 1965. 9 However, far from being a dynamic common to the entire productive fabric, the divergences between different sectors of activity with regard to the evolution of production and productivity depicted a markedly heterogeneous scenario. Cebrián (2001), Sanchís (2001; 2006) and Gutiérrez and Sánchez-Mosquera (2022) have noted these differences, which were reflected in both the remuneration of production factors and in the levels of wage inequality present in different sectors. Figure 1 shows the evolution of the average hourly wage and the coefficient of wages variation in the different sectors of activity analysed, from 1963 to 1973. In view of the data, two fundamental characteristics can be observed. First, there is a clear duality between heavy industries with high average wages (these are mining, production and 9 An internal report of the Division of International Finance of the US Federal Reserve System announced this miracle, highlighting “the surprisingly favorable changes in Spanish economic conditions” (Mills, 1965). 16 distribution of gas and electricity, metal industries and chemical industries) and light industries and construction, where wages were between 15 and 45 per cent below the former. While this duality could be attributed a priori to the divergent performance of different industrial sectors in terms of productivity, it was not justified by the trends indicated by the data. 10 Indeed, as already indicated by Malo de Molina (1981), these inter-sectoral wage differences, along with the uneven evolution of sectoral labour productivity, cast doubts on the effectiveness of the industrial relations framework established through the 1958 law on collective agreements. In the absence of free unions, there was no institutional mechanism capable of transferring the wage increases of the more productive sectors to the rest of the economy, which would constitute a crucial difference from the European labour markets of the Golden Age. In effect, unlike the European markets, the wage differences between the technologically more advanced and capital-intensive sectors and those less progressive or more backward and labourintensive sectors continued and were even accentuated during the period of study. Thus by the end of the cycle of developmentalist growth, just before the onset of the oil crisis, the differences were at a maximum. FIGURE 1. Coefficients of intra-sectoral wage variation (left axis) and average hourly wage, in current pesetas (right axis) (1963-1973). 10 Both Sanchís (2001; 2006) and, more recently, Gutiérrez & Sánchez-Mosquera (2022), show that there is not a universal correlation between wage growth and sustained increases in productivity: in sectors such as mining, wages rose while productivity declined, whereas in other areas such as the food industry, considerable increases in productivity were not met with corresponding wage increases. 17 Source: Estadística de Salarios, Years 1963-1977. Second, with regard to intra-sectoral wage differences, measured in terms of variation of the hourly wage of different professional categories, heterogeneous 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Mining 0 20 40 60 80 100 0 0,2 0,4 0,6 0,8 Electricity and Gas 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Metal Industries 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Chemical Industries 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Food, Beverages and Tobacco 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Textile and Footwear 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Wood and Furniture 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Paper Industries 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Prints and editing 0 20 40 60 80 100 0,4 0,5 0,6 0,7 0,8 Construction Wage coeff. of variation Average wage per hour 18 behaviour can likewise be observed. Mining, energy, metallurgical and chemical industries (that is, capital-intensive sectors), showed a substantial and sustained fall in the levels of wage dispersion. Consequently, a phenomenon of levelling of remuneration between the most skilled and productive jobs and less skilled jobs with lower aggregate productivity levels may be inferred. Following the terms of Oude Nijhuis (2017), this would be a process of wage compression, such as that experienced by European economies during the Golden Age. On the contrary, in the consumer goods industries, more labour intensive, the reverse trend is detected: far from a phenomenon of convergence, the hourly wage becomes more disperse as it rises throughout the period of developmentalism. This evidence, which underlines the increasing disparities between the best paid categories and workers new to the sector, portrays the opposite scenario to that detected in capital-intensive industries. Indeed, with the only exception of the wood and furniture industry, the data paint a grim reality in the less technical industrial sectors: as well as having lower wage growth, intra-sectoral inequality was greater and increasing over time. It thus seems clear that a considerable part of the consumer goods industries did not experience a general dynamic of wage compression. Consequently, this would substantially qualify the conclusions reached by previous studies on the evolution of inequality in Spain during the phase of developmentalism. FIGURE 2. Wage inequality by industry. Gini index (1963-1973). 19 Source: Estadística de Salarios, Years 1963-1973. To test this approach, Figure 2 shows the evolution of annual wage inequality (that is, Gini indices) in different sectors during the period 1963-1973. First, as can be seen, 0,100 0,150 0,200 Mining 0,100 0,150 0,200 Electricity and Gas 0,100 0,150 0,200 Metal Industries 0,100 0,150 0,200 Chemical Industries 0,050 0,100 0,150 Food, Beverages and Tobacco 0,200 0,250 0,300 Textile and Footwear 0,050 0,100 0,150 Wood and Furniture 0,100 0,150 0,200 Paper Industries 0,100 0,150 0,200 Printing and Editing 0,100 0,150 0,200 Construction 20 income inequality started from higher levels in the production and distribution of gas and electricity, the chemical sector and, especially, the textile industry. On the contrary, the food, beverages and tobacco sectors and the wood and furniture industry had much lower levels of inequality at the beginning of the period studied. Second, beyond the differences in absolute terms, the evolution of wage inequality differs notably between industries. In fact, as anticipated by the results in Figure 1, the cycle of developmentalist growth and the institutional framework established by the 1958 law on collective agreements failed to promote a generalised phenomenon of wage compression, since the convergence of labour incomes was limited to specific economic sectors. In particular, there was an appreciable reduction of wage inequality in the chemical industry, up to 1968, in the production and distribution of electricity and gas, to 1971, in the metal sector, until 1972, and in the paper industry. At the opposite extreme, light industries such as the food, textile, printing and publishing sectors and construction experienced variable increases in wage inequality, while in the wood and furniture sector income disparity increased up to 1969 and then underwent a slight fall. Finally, mining followed a variable path, marked by the weight of the coal sector and the transformations it experienced during the 1960s. In fact, this was the most vocal, demanding and conflictive sector of the Spanish labour market. 11 What is more, it followed its own particular path until at least 1973 due to the stagnation of production and productivity in this sector, owing to the progressive substitution of coal by other sources of energy. These results define two different patterns of evolution of wages in the industrial sphere, which contrasts with the evolution of other Western countries during the Golden Age and accentuates the peculiarity of the Spanish labour market in the European context. Indeed, the absence of free unions and the limitations of the mechanisms to deal with 11 For an analysis of the particularities of labour organisation in the coal mining industry during the dictatorship, see Vega (1999). 21 demands and grievances would have prevented the wage improvements of the more productive, better organised and better paid sectors being passed on to the rest of the economy through functional and effective collective bargaining instruments, which served as a channel and driving force for wage improvements in European democracies (Malo de Molina, 1981, pp. 155-157, 626). FIGURE 3. Wage inequality in aggregated sectors. Gini index (1963-1973). Source: Estadística de Salarios, Years 1963-1973. Figure 3 illustrates this duality, showing the aggregate performance of inequality in different economic sectors: mining, heavy industries (metal, chemical, etc.), light industries (food, beverages and tobacco; wood and furniture; textile and footwear, publishing etc.) and the service sectors included in our source (retail trade, banking and insurance). In view of the data, there was a considerable reduction of wage inequality in aggregate terms in heavy industry, whereas the trend was the opposite in the other sectors. Furthermore, except in the case of mining, heavily conditioned by the changes in the coal sector, both light industries and services showed a sustained trend of increasing wage inequality. However, the pace and intensity of this trend was evidently greater in the service sector, where the value of the Gini coefficient rose by almost ten points (from 0,100 0,150 0,200 0,250 Mining 0,100 0,150 0,200 0,250 Heavy industries 0,100 0,150 0,200 0,250 Light industries 0,150 0,200 0,250 0,300 Services 22 0.18 to 0.27). These results and the heterogeneity shown by the performance of the Spanish economy condition and challenge the idea of Francoist developmentalism as a period of a generalised reduction in inequality, while also raising questions about the functioning of the labour market under the dictatorship’s regulations, aspects that will be explored in the following section. 5. Discussion The results obtained help enrich our knowledge of the evolution of inequality during Francoist developmentalism. Without questioning the results of Prados de la Escosura (2008), which support the idea of a general reduction of wage inequality in aggregate terms, this paper introduces an important nuance in relation to the specific performance of industrial labour markets. Thus, it seems clear that, unlike what happened in postwar Western European and American economies, where the combination of institutional changes in the labour market and the actual dynamic of economic growth caused a phenomenon of convergence between the wages of the most skilled and productive workers and those less prepared and less productive, in the Spanish case this phenomenon of wage compression is not encountered except in very specific branches. In effect, the heterogeneity present in the evolution of intra-sectoral wage inequality implies a dual account of the effects of growth on the economic structure of Spanish industry. It was only in activities related to heavy industry that there was wage convergence that in any way resembled the process of wage compression. This exceptional situation is in keeping with the findings of Gutiérrez and Sánchez (2022) regarding capital formation trends and, especially, the transformation of the workforce structure. Indeed, although the growth in production was common to all industrial branches, the importation of technology and the incorporation of organisational improvements characteristic of scientific management, that is, the scientific organisation 23 of labour, concentrated in those industries linked to metal processing and the manufacture of chemical products and machinery. This dynamic accentuated the duality between technologically advanced and capital-intensive industrial sectors and technologically backward labour-intensive sectors. The former experienced a sharp improvement in productivity, outstripping the other industrial branches, while changes became evident in the profile of the workforce employed. Indeed, Gutierrez and Sanchez (2022) showed how the most advanced industries, such as chemical and metalworking, experienced a significant reduction of unskilled labour, while the proportion of medium and low-skilled technical personnel increased drastically. In contrast, the behaviour of the main consumption industries (food, beverages and tobacco and textiles and footwear) revealed greater resistance to changes in the occupational structure: the reduction in the low-skilled or unskilled labour force barely reached 3% of the total workforce. These two business models involving, on the one hand, large companies, subsidiaries of multinationals and/or companies with state ownership or the participation of fortunes close to the dictatorship and, on the other hand, a large group of small and medium sized enterprises, comprised two development models guided by different principles. In the first case, development was based on the possibilities of importing technology related to the innovations of the second technological revolution, widely disseminated in the industrialised north of Europe and in the United States and which had become progressively less expensive from the 1950s onwards; while the second case relied on relatively cheap labour and an asymmetrical industrial relations system aimed at suppressing labour demands and grievances. The variable evolution of the different industrial sectors in terms of capital formation, productivity and workforce structure helps understand the path of intrasectoral wage inequality and, ultimately, contributes to explain the effects of the model 24 of economic growth on the production structure. Hence, taking into account the two explanatory models of the reduction in inequality, it seems clear that even when the Spanish experience fits in with Kuznets’s thesis (that is, a reduction in inequality driven by market forces and economic growth), this assertion should be nuanced, since it does not appear to be applicable to all sectors of activity, especially among industrial branches. Apart from market forces, it also seems that the institutional mechanisms of inequality reduction, such as those referred to by Piketty, were not active in the Spanish case. In fact, first of all, the Spanish industrial relations system did not include either centralised collective bargaining mechanisms or free unions. Quite the contrary, collective bargaining mediated and supervised by the state prioritised the provincial level, preventing wage convergence in geographical terms, while the absence of free unions impeded the transfer of wage gains from the more productive sectors to the rest (Malo de Molina, 1981; Molinero & Ysas, 1998; Vilar, 2017). This relative wage flexibility, which made it possible for less advanced companies to employ cheap labour as an instrument of competitiveness, would have been what generated the inter-sectoral divergences and internal imbalances of the Spanish industrial structure (Myro, 1993, pp. 26-27; Barciela et al, 2001, pp. 425-428). Second, the institutional mechanisms of social protection that could contribute to wage and income convergence did not act effectively. 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