Advanced Search
MyIDEAS: Login

Labour Market Flexibility and EMU Sustainability: The Effects of the French Law on Working Time Reduction

Contents:

Author Info

  • Dennis Kredler
Registered author(s):

    Abstract

    Europe currently faces two major labour market issues relevant for EMU. Firstly, there is a need to bring down the relatively high unemployment rate to avoid a shift in the political preferences in some member countries away from price stability to employment-creating but inflationary monetary policy. Secondly, there is a need for greater flexibility in the labour markets, which national governments have been reluctant to introduce in the face of strong political opposition. Recent developments in some member states seem to have moved in the wrong direction, rendering labour markets more rigid. This study examines what will be the effects on flexibility of the French law reducing the legal weekly working time and what this may mean for EMU. Very little literature examines the types of measures required to increase labour market flexibility going beyond wage flexibility and labour mobility, the main factors suggested by Robert Mundell, who pioneered optimum currency area theory in 1961. There are, however, a number of elements of flexibility that can contribute to the improvement of the eurozone’s capability to adjust to an asymmetric exogenous shock while minimising the employment effects. This paper identifies what other types of changes would contribute to the increase in labour market flexibility required to ensure EMU sustainability, and whether the new French approach contributes to the solution of the problem, or makes matters worse. The study first looks at the theoretical significance of labour markets in a monetary union, and then proceeds to construct a framework for the analysis of the employment effects of working time reductions before reviewing the analytical literature on this topic. The third chapter defines the elements of flexibility that can be influenced with a view to increasing EMU sustainability, finally analysing the provisions of the Aubry law in the light of the preceding definitions with the help of a simple NAIRU model. The report comes to a result running counter to the common perception of the French initiative, which is that the law simply imposes an additional constraint on the country’s labour market. While a rigidifying effect cannot be denied, it also provides for a number of measures that may well bring about a greater degree of flexibility. This raises the possibility that the legislation in question is in fact a Trojan horse policy, sold to the public on the basis of its (limited) employment-creating effects but really designed to create a suppler labour market. If this conclusion is an accurate reflection of reality, then the news for EMU is good: Despite public opposition to increased flexibility, it may well be achievable. The elimination of some rigidities may necessitate the introduction of a new one, but this give- and-take practice may allow governments to render their labour markets apt to respond to the requirements posed upon them by monetary union.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://128.118.178.162/eps/mac/papers/0309/0309011.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 0309011.

    as in new window
    Length:
    Date of creation: 11 Sep 2003
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0309011

    Note: Type of Document -
    Contact details of provider:
    Web page: http://128.118.178.162

    Related research

    Keywords: Economic and Monetary Union (EMU); European Monetary Policy; European Labour Markets; French Working Time Reduction; RTT; Réduction du Temps de Travail;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0309011. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.