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Employment and Labor Market Flexibility in the New EU Member States

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On May 1, 2004, ten new Member States (NMS) entered the European Union (EU). Since the NMS are still in the midst of a transition and catching-up process, not only will they face asymmetric shocks, but; these shocks will be largely uncorrelated with those prevailing in EMU. Upon EU accession the NMS also; entered the monetary integration process, which ends with the adoption of the euro. This implies that; the NMS will relinquish autonomy over monetary policy and exercise restrictions on fiscal policy. According; to optimum currency area theory, in the absence of a national monetary policy flexible labor markets; become central to accommodating idiosyncratic shocks. This paper takes a look at the labor markets in; the NMS, focusing especially on labor market flexibility. The analysis show higher labor cost flexibility in; the NMS than in the EU in general. Supply-side flexibility, notably occupational and regional mobility,; seems to be lower. However, overall flexibility seems to be small or even insignificant. Thus, the paper; suggests that the NMS have to make further efforts to enhance labor market flexibility, especially; improving regional mobility and applying active labor market policies. With a view to further monetary; integration, early participation in the euro area may not be the optimal choice for some of the NMS.;

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  • Thomas Gruber, 2004. "Employment and Labor Market Flexibility in the New EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 96-121.
  • Handle: RePEc:onb:oenbfi:y:2004:i:1:b:3
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    File URL: https://www.oenb.at/dam/jcr:fd8979e3-9e8a-4220-8eaa-02c2b016c5a7/employment_tcm16-20268.pdf
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    1. Iara, Anna & Traistaru, Iulia, 2004. "How flexible are wages in EU accession countries?," Labour Economics, Elsevier, vol. 11(4), pages 431-450, August.
    2. Funk, Lothar & Lesch, Hagen, 2004. "Arbeitsbeziehungen in Mittel- und Osteuropa," IW-Trends – Vierteljahresschrift zur empirischen Wirtschaftsforschung, Institut der deutschen Wirtschaft (IW) / German Economic Institute, vol. 31(1), pages 33-38.
    3. Huber, Peter, 2004. "Intra-national labor market adjustment in the candidate countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 248-264, June.
    4. Fidrmuc, Jan, 2004. "Migration and regional adjustment to asymmetric shocks in transition economies," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 230-247, June.
    5. Fritz Breuss, 2001. "Macroeconomic Effects of EU Enlargement on Old and New Members," WIFO Monatsberichte (monthly reports), WIFO, vol. 74(11), pages 655-666, November.
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    7. Huber, Peter, 2006. "Regional labor market developments in transition," Policy Research Working Paper Series 3896, The World Bank.
    8. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter.
    9. Gabor Hunya, 2004. "Foreign Direct Investment in Central and Eastern Europe with Special Attention to Austrian FDI Activities in this Region," wiiw FDI Reports 2004-02, The Vienna Institute for International Economic Studies, wiiw.
    10. repec:wfo:wstudy:24616 is not listed on IDEAS
    11. Vassilis Monastiriotis, 2003. "A panel of regional indicators of labour market flexibility: the UK, 1979-1998," Royal Holloway, University of London: Discussion Papers in Economics 03/1, Department of Economics, Royal Holloway University of London, revised Dec 2003.
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    Cited by:

    1. Sebastian Weber, 2006. "Labor Market Structures, Trade and their Effect on Unemployment: A Theoretical Analysis and Empirical Investigation," IHEID Working Papers 22-2006, Economics Section, The Graduate Institute of International Studies.

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