DP3646 Macroeconomic Fluctuations and the Timing of Labour Market Reforms

Author(s): Gilles Saint-Paul
Publication Date: November 2002
Keyword(s): employment protection, firing costs, labour market reforms, monetary union, political economy, unemployment
JEL(s): E32, E52, E61, J60
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3646

In this Paper, I analyse the pros and cons of implementing structural reforms of the labour market in booms versus recessions, in light of considerations of social efficiency, political viability, and macroeconomic fine-tuning. While the optimal timing of a reform depends on the relative importance of several conflicting effects, it seems clear that a reform should be accompanied by an expansionary macroeconomic policy. This makes structural reform more problematic in the context of the European Monetary Union.