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Unemployment, Labor Market Reform, and Monetary Union

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  • Calmfors, Lars

Abstract

Monetary union, such as the Economic and Monetary Union in Europe (EMU), may affect incentives for labor market reform, and thus equilibrium unemployment, through several mechanisms. If an inflation bias exists, there is usually a stronger incentive to reduce equilibrium unemployment through national reform outside rather than inside the EMU. Absent such a bias, EMU membership could lead to more reform. One reason is that reform may increase wage flexibility, which can substitute for monetary policy in the EMU. Another reason could be a precautionary motive for low equilibrium unemployment to reduce the utility cost of increased macroeconomic variability in the EMU. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Calmfors, Lars, 2001. "Unemployment, Labor Market Reform, and Monetary Union," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 265-289, April.
  • Handle: RePEc:ucp:jlabec:v:19:y:2001:i:2:p:265-89
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    References listed on IDEAS

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    1. Franco Modigliani & Jean Paul Fitoussi & Beniamino Moro & Denis Snower & Robert Solo & Alfred Steinherr & Paolo Sylos Labini, 1999. "An Economist’s Manifesto on Unemployment in the European Union," Journal of Income Distribution, Journal of Income Distribution, vol. 8(2), pages 1-1, December.
    2. Gruner, Hans Peter & Hefeker, Carsten, 1999. " How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 33-47, March.
    3. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    4. Eichengreen, Barry, 1998. "European Monetary Unification: A Tour d'Horizon," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 24-40, Autumn.
    5. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
    6. Lindbeck, Assar, 1992. "Macroeconomic theory and the labor market," European Economic Review, Elsevier, vol. 36(2-3), pages 209-235, April.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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