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Institutional Uncertainty and European Social Union: Impacts on Job Creation and Destruction in the CEECs

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Author Info

  • Belke, Ansgar

    ()
    (University of Duisburg-Essen)

  • Göcke, Matthias

    ()
    (University of Münster)

  • Hebler, Martin

    ()
    (Technologiezentrum Wuppertal)

Abstract

With the extension of its competence for social policy legislation in the Maastricht and Amsterdam treaties, the EU has adopted a significantly new social dimension in the past ten years. According to the Copenhagen criteria, the CEEC candidate countries have to adopt the former via the acquis communautaire. This paper discusses the effect of an adoption of this EU social law on future labor market performance in the CEECs. For this purpose, we model and investigate the impact of institutional uncertainty (and of its elimination) on job creation and job destruction in the CEEC candidate countries. We conclude that structural change on CEEC labor markets tends to be fostered via reducing institutional uncertainty. However, these kinds of benefits of the adoption of the acquis have to be weighed against the danger that the adoption of inefficient EU social and labor policy regulations imposed by the acquis might also entail significant risks for employment in the CEECs similar to those which have materialized in the former EU. This rather pessimistic view can be substantiated based on a public choice analysis of why the old EU members will want to impose the Social Charter even though it will harm the new members. These risks consist of a significant increase in hiring and firing costs and of higher wage rates. Based on a simple option value analysis, we investigate and evaluate the trade-off between lower institutional uncertainty and higher employment costs induced by the adoption of the acquis.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1039.

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Length: 27 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published in: Journal of Policy Modeling, 2005, 27 (3), 345-354
Handle: RePEc:iza:izadps:dp1039

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Keywords: institutional uncertainty; EU enlargement; real option approach; social union;

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References

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  11. Hans-Werner Sinn, 1999. "EU Enlargement, Migration, and Lessons from German Unification," CESifo Working Paper Series 182, CESifo Group Munich.
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Citations

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Cited by:
  1. Saam, Nicole J. & Sumpter, David, 2008. "EU institutional reforms: How do member states reach a decision," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 71-86.
  2. Belke, Ansgar & Bordon, Ingo & Melnykovska, Inna & Schweickert, Rainer, 2009. "Prospective NATO or EU Membership and Institutional Change in Transition Countries," IZA Discussion Papers 4483, Institute for the Study of Labor (IZA).
  3. Calcagnini, Giorgio & Giombini, Germana & Saltari, Enrico, 2009. "Financial and labor market imperfections and investment," Economics Letters, Elsevier, vol. 102(1), pages 22-26, January.
  4. Ansgar Belke & Ingo Bordon & Inna Melnykovska & Rainer Schweickert, 2009. "Prospective Membership and Institutional Change in Transition Countries," Kiel Working Papers 1562, Kiel Institute for the World Economy.
  5. Belke, Ansgar & Gocke, Matthias & Hebler, Martin, 2005. "Institutional uncertainty and European Social Union: Impacts on job creation and destruction in the CEECs," Journal of Policy Modeling, Elsevier, vol. 27(3), pages 345-354, April.

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