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Does joining the European monetary union improve labor productivity? A synthetic control approach

Author

Listed:
  • Hong Zhuang

    (Indiana University South Bend)

  • Miao Grace Wang

    (Dr. E.J. and Margaret O’Brien Hall, Marquette University)

  • Imre Ersoy

    (Marmara University)

  • Mesut Eren

    (Marmara University)

Abstract

We adopt the innovative synthetic control method (SCM) to study the causal effect of joining the European Monetary Union (EMU) on member countries’ labor productivity. Comparing labor productivity between members and their synthetic counterparts, we find that Belgium, France, Germany, Ireland, Italy, and the Netherlands experienced significant labor productivity gains from the eurozone membership. Our results are robust to a series of sensitivity checks. We also observe similar effects of EMU on members’ total factor productivity (TFP). Furthermore, we explore potential channels through which a monetary union can influence members’ labor productivity. Our results show that business cycle synchronization with other members and similar labor market institutions to other members contribute to an EMU country’s labor productivity gains.

Suggested Citation

  • Hong Zhuang & Miao Grace Wang & Imre Ersoy & Mesut Eren, 2023. "Does joining the European monetary union improve labor productivity? A synthetic control approach," Journal of Productivity Analysis, Springer, vol. 59(3), pages 287-306, June.
    • Handle: RePEc:kap:jproda:v:59:y:2023:i:3:d:10.1007_s11123-023-00668-1
    DOI: 10.1007/s11123-023-00668-1
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    More about this item

    Keywords

    Labor Productivity; Eurozone; European Monetary Union; Synthetic Control Method;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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