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The Effects of EMU on Structural Reforms in Labour and Product Markets

  • Romain Duval
  • Jørgen Elmeskov

Structural reforms in labour and product markets are required in a number of euro-area countries. A question in this regard, which is the topic of this paper, is whether belonging to the euro area tends to help or hinder structural reform. The paper first reviews the theoretical arguments and the existing empirical literature – in both cases finding conclusions that point in opposite directions. Next, the paper uses an OECD database on labour market reform developed recently and an update of OECD indicators of product market regulation to compare progress in labour and product market reform over the decade since 1993 between euro-area countries and other OECD countries. Overall, euro-area countries appear to have made relatively good progress in structural reform but it is much less clear from the descriptive evidence whether progress can be ascribed to membership of Economic and Monetary Union. To explore further the role of monetary regime for structural reform, the paper undertakes an econometric examination of the likelihood that countries undertake reform in five specific areas of labour and product market policies. Based on pooled cross-country/time series Probit regressions covering 21 countries and the period 1985-2003, it is found that structural reform is strengthened by high unemployment, crisis as reflected in a large output gap, healthy public finances, reforms in other policy fields and small country size. Further, countries that pursue fixed exchange-rate regimes or participate in monetary union, and therefore have little or no monetary autonomy, appear to undertake less structural reform – with the effect possibly being concentrated on large countries. Les effets de l'UEM sur la mise en œuvre des réformes structurelles sur les marchés du travail et des biens Des réformes structurelles sur les marchés du travail et des biens s’avèrent nécessaires dans un certain nombre de pays de la zone euro. Une question à ce propos, qui constitue le sujet de cet article, est de savoir si l’appartenance à la zone euro tend à favoriser ou à freiner la mise en oeuvre de réformes structurelles. L’article passe tout d’abord en revue les arguments théoriques et la littérature empirique – qui dans les deux cas aboutissent à des conclusions contradictoires. L’article utilise ensuite une base de données OCDE sur les réformes des marchés du travail développée récemment, ainsi qu’une actualisation des indicateurs OCDE de réglementation des marchés des biens, afin de comparer les progrès en matière de réformes des marchés du travail et des biens au cours de la décennie écoulée depuis 1993 entre les pays de la zone euro et les autres pays de l’OCDE. Dans l’ensemble, il apparaît que les pays de la zone euro ont relativement bien progressé en matière de réformes structurelles, mais il est beaucoup moins évident au vu de l’analyse descriptive que ces progrès peuvent être attribués à l’appartenance à l’Union Économique et Monétaire. Afin d’explorer plus avant le rôle du régime monétaire dans la mise en œuvre de réformes structurelles, l’article effectue une analyse économétrique de la probabilité que les pays entreprennent des réformes dans cinq types de politiques relatives aux marchés du travail et des biens. Sur la base de régressions de type Probit sur données de panel couvrant 21 pays au cours de la période 1985-2003, il ressort que la mise en œuvre de réformes structurelles est renforcée par un chômage élevé, une crise économique telle que mesurée par un écart de production élevé, une situation saine des finances publiques, l’existence de réformes dans d’autres domaines et la faible taille du pays considéré. En outre, les pays participant à un régime de changes fixes ou à une union monétaire, et qui par conséquent disposent d’une autonomie limitée voire inexistante de leur politique monétaire, apparaissent entreprendre moins de réformes structurelles – cet effet étant potentiellement plus marqué dans le cas des grands pays.

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File URL: http://dx.doi.org/10.1787/830757326248
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 438.

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Date of creation: 25 Jul 2005
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Handle: RePEc:oec:ecoaaa:438-en
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