Unemployment, Labor-Market Reform and Monetary Union
CES Working Paper at University of Munich No. 173
Posted: 8 Apr 1999
Date Written: November 1998
The paper analyzes various mechanisms through which monetary union in Europe may affect unemployment. The focus is on the political incentives for labor-market reform. There will be more reform outside than inside the EMU to the extent that a national inflation bias can be reduced. But if there is a precautionary motive for low average unemployment in order to reduce the utility cost of macroeconomic variability, there could be more reform in monetary union. Labor-market reform to increase wage flexibility as a substitute for domestic monetary policy and transition costs of reform are also analyzed. The net effect of monetary union on unemployment is ambigous.
JEL Classification: E58, E69, F33, J29
Suggested Citation: Suggested Citation