Testing Spanish labour market segmentation: an unknown-regime approach

This paper studies the existence of two differentiated segments, primary and secondary, in the Spanish labour market. For this, a methodology (switching regression model with unknown regimes) is used which, on the one hand, does not demand a priori demarcation of segments and on the other, enables the allocation of workers to the segments to be treated as a factor endogenous to the model itself and closely connected with the wage-setting mechanisms operating in the segments. The empirical results show that the assignment to segments is not random and that there are substantial differences in the wage determination process between the two sectors. Furthermore, the model estimated has allowed analysis of the ex-post composition of the segments and corroboration, to a large extent, of the predictions of the dual labour market theory.