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Is the Euro Working? The Euro and European Labour Markets

Author

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  • Stephen Silvia

    (American University)

Abstract

Now that four years have passed since the introduction of the euro as a commercial currency, it has become possible to assess many arguments made in the abstract during the 1990s about the implications of monetary union. This contribution does precisely that. In brief, the euro zone still falls short as an optimal currency area in most respects. In particular, an empirical analysis of labor-market developments shows no progress toward flexibility or integration. The findings undercut assertions that the euro will force a liberalization of labor markets, so that they can serve as the principal vector of adjustment in the new currency area. Instead, a “rigidity trap” has developed in the euro area—which consists of relatively tight monetary policy, forced fiscal consolidation, and the virtual elimination of the gap between the real and the nominal wage—making structural adjustment in labor markets more difficult.

Suggested Citation

  • Stephen Silvia, 2005. "Is the Euro Working? The Euro and European Labour Markets," International Finance 0508007, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0508007
    Note: Type of Document - pdf; pages: 22
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    More about this item

    Keywords

    optimum currency area; monetary union; asymmetric shocks; wages;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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