DP7049 Labour Markets in EMU - What has Changed and What Needs to Change

Author(s): Giuseppe Bertola
Publication Date: November 2008
Keyword(s): economic integration, labour market policies
JEL(s): J5, J8
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7049

This paper reviews theoretical and empirical aspects of the interaction between Europe’s Economic and Monetary Union and recent labour market developments. Policies meant to increase and stabilize labour incomes also tend to reduce employment and productivity: theory suggests that the latter effects should be sharper and more relevant within an integrated market area, making it harder for National policy makers to address the consequences of financial and other market imperfections. Empirical patterns of policy and outcome indicators in member and non-member countries of EMU are consistent with that theoretical mechanism. In the data, tighter economic integration is associated with better employment performance, substantial deregulation, sharper disemployment effects of remaining regulatory differences, and somewhat higher inequality and larger private financial market volume.