EMU and Labour Market Reform: Needs, Incentives and Realisations

Abstract

Despite improving labour market conditions in recent years, a number of EMU countries still suffer from high and persistent unemployment. It could therefore be expected that labour market reform would be given a prominent position on the political agenda. The new constraints associated with the common monetary policy only increase the pressure for reform. Relying on the introduction of the single currency as a trigger for labour market reform may be a risky strategy. EMU generates a complex set of re-optimising strategies of the players on the labour market, which makes it difficult to get a clear idea what impact it will have on labour market reform. Evaluation of recent reform measures does not make one confident either. The empirical analysis confirms to some extent the idea that countries with higher unemployment rates have carried out more labour market reform. This finding holds, however, only for countries that do not belong to EMU. EMU countries have on average carried out no more reform than countries outside EMU and any link between the initial unemployment level and the labour market reform indicators seems to lack. It may become apparent that more reform is needed once the macroeconomic environment becomes more unfavourable. Copyright Blackwell Publishers Ltd 2001.

When Eastern Labour Markets Enter Western Europe: CEECs Labour Market Institutions Upon Euro Zone Accession

“…Van Poeck and Borghijs (2001) point that although EC commences many initiatives supporting structural labour market reforms -with the leading role of European Employment Strategy and National Action Plans -so far no "punishment mechanisms" were imposed. Moreoveor, eventual evaluation comes from the European Council, which means that ministers in respective countries responsible for NAPs implementations are exactly those who provide their assessment.…”

“…An important result (following from Brigden and Thomas (2003), but also Agell and Lundborg (1999), Andersen and Seneca (2008), Calmfors (2001b) and Elmeskov et al (1998) as well as Van Poeck and Borghijs (2001) is that, it is virtually impossible to write down a single reduced-form relationship linking either the unemployment rate or the inactivity rate (or some combination of the two) to wage pressure. This is because the relationship depends on the source of the shock that has caused either the unemployment rate or the inactivity rate to move.…”

“…This is depicted by Figure (3). Based on these results (left panel), Van Poeck and Borghijs (2001) conclude that a weak positive relationship exists between the level of equilibrium unemployment in 1990 and the amount of institutional reform over the 1990s. However, it seems from the inspection of the right panel, that this relationship did not contribute to lowering of the equilibrium unemployment rates in as many as seven cases: five EMU (Netherlands, Portugal, Spain, Ireland and Belgium) and two non-EMU (UK and Denmark).…”

The Effects of EMU on Structural Reforms in Labour and Product Markets

“…Relying on a descriptive approach, van Poeck and Borghijs (2001) argue that the prospect of qualifying for EMU should provide as big an incentive for labour-market reform as EMU membership itself. Hence, they consider the progress EMU and non-EMU countries made over the 1990s in implementing the priorities for labour-market reform established by the OECD in the context of its Jobs Strategy.…”

Instability of the Eurozone? On Monetary Policy, House Prices and Structural Reforms

“…Van Poeck and Borghijs (2001) argue that the prospect of qualifying for EMU should provide as big an incentive for labor-market reform as EMU membership itself. They conclude that EMU countries did not reform more than other countries and, unlike elsewhere, their progress on reform seemed unrelated to the initial level of unemployment.…”