European Economic Integration and the Effectiveness of Employment Policies
24 Pages Posted: 27 May 2003
Date Written: March 20, 2003
This paper examines the qualitative impact and the degree of effectiveness of several labor market policies when domestic union's wage response and economic integration are explicitly taken into account. The employment policies considered include payroll tax cuts, unemployment benefits cuts, aggregate demand expansion and wage subsidies. It is shown that with endogenous wages and an open economy, these policies can in some cases become more potent. But in other instances, they become less effective. In fact, under some conditions derived in this paper, employment policies can even be counterproductive, leading to a drop in domestic employment.
Keywords: European unemployment, economic integration, labor market structure
JEL Classification: F15, F42, L51
Suggested Citation: Suggested Citation