Working Paper: CEPR ID: DP7049
Authors: Giuseppe Bertola
Abstract: 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.
Keywords: Economic Integration; Labour Market Policies
JEL Codes: J5; J8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tighter economic integration (F15) | better employment performance (J68) |
| deregulation of labour markets (J48) | increased employment rates (J68) |
| increased economic integration (F15) | magnified negative effects of labour market policies (J48) |
| high taxation (H29) | depressed employment in EMU member countries (E24) |
| deregulation of labour markets (J48) | higher inequality (D31) |
| EMU membership (F36) | improved labour market outcomes (J48) |
| EMU (F36) | reduced unemployment rates among vulnerable groups (J68) |
| increased inequality (F61) | heightened risks for income stability (J26) |