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EMU and Economic Policy in Europe

The Challenge of the Early Years

Edited by Marco Buti and André Sapir

EMU is a completely new policy regime which has significant economic implications and which, it is hoped, will ultimately enhance the role of Europe on the world stage. EMU and Economic Policy in Europe takes stock of the initial experiences of EMU and assesses the challenges which will have to be addressed in the early years of its existence to ensure its long-term objectives are successfully achieved.
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Chapter 10: EMU Labour Markets Two Years On: Microeconomic Tensions and Institutional Evolution

Giuseppe Bertola and Tito Boeri


10. EMU labour markets two years on: microeconomic tensions and institutional evolution Giuseppe Bertola and Tito Boeri* 1. INTRODUCTION The purpose of this study is to shed light on the likely impact of EMU on labour market performance and institutions. In particular, the following three broad questions are addressed: G G G In light of recent experience, theoretical insights and institutional configurations, what is the likely impact of EMU on labour market outcomes? How is EMU going to affect ongoing reforms of labour market institutions and, more broadly, social protection systems for nonemployed individuals of working age? Has EMU already affected labour market performance and/or the pace and nature of reforms in the relevant area? We proceed as follows. We start by characterizing the balance of employment, wage, and fiscal objectives and concerns in the Member Countries’ current labour market configurations, with particular attention to distributional issues. Then we move on to discuss the impact of EMU on those configurations. Finally, we assess the character of reform tensions theoretically expected and actually observed in the EMU area. Section 2 offers a concise review of theoretical insights and empirical indicators on the motivation and effects of labour market institutions as observed in European countries’ historical experience. Institutional features are characterized on the basis of their broad and interrelated economic and distributional implications. In general, such implications depend on the structure of markets and on the details of policy implementation. In order to illustrate the...

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