EMU and Labour Market Reform: Needs,Incentives and Realisations

Despite improving labour market conditions in recent years, a number of EMU countries still suffer from high and persistent unemployment. It could therefore be expected that labour market reform would be given a prominent position on the political agenda. The new constraints associated with the common monetary policy only increase the pressure for reform. Relying on the introduction of the single currency as a trigger for labour market reform may be a risky strategy. EMU generates a complex set of re‐optimising strategies of the players on the labour market, which makes it difficult to get a clear idea what impact it will have on labour market reform. Evaluation of recent reform measures does not make one confident either. The empirical analysis confirms to some extent the idea that countries with higher unemployment rates have carried out more labour market reform. This finding holds, however, only for countries that do not belong to EMU. EMU countries have on average carried out no more reform than countries outside EMU and any link between the initial unemployment level and the labour market reform indicators seems to lack. It may become apparent that more reform is needed once the macroeconomic environment becomes more unfavourable.     

Germany’s stake in exchange rate stability

The position taken by politicians and important pressure groups in Germany concerning EMU will depend to a large extent on its labour market implications—and thus on the (perceived) impact of exchange rate variability on employment and unemployment. Most economists would assume this impact to be minor. The purpose of this paper is to show that this presumption might be wrong.     

MONOPOLISTIC COMPETITION AND SEARCH UNEMPLOYMENT

In this paper the monopolistic competition model of Dixit and Stiglitz for the goods market and the search unemployment model of Pissarides are combined. The Pissarides part loses its Walrasian goods market and the Dixit–Stiglitz part loses its Walrasian labour market. Pissarides’ results now depend on the degree of competition. In the Dixit–Stiglitz part the size and number of firms as well as aggregate output now depend on aggregate hiring costs, tightness and unemployment, while real wages are not fixed. Some partial results of comparative static properties of the original models survive. New results concerning the effects of changes in labour (goods) market parameters on goods markets (the labour market) variables are obtained and related to the literature on macroeconomic theory with endogenous unemployment and imperfect competition, empirical results and policy issues.     

Occupational Transitions and Corporate Responsibility in Layoffs: A European Research Project (SOCOSE)

One of the most prominent aspects of the present labour markets is an increase in occupational transitions. Employees experience insecurity to a much larger degree than ever before. Under these circumstances, the questions of blame and responsibility – for job-loss or unemployment –, so far much too readily focused on the individual, have to be re-considered. Transitions will also have to be framed by company based or labour administration interventions.This situation forms the entrance to the scientific evaluation that is central to the SOCOSE project. It aims at the formulation of an integrated European model for outplacement/replacement counselling. Thus, transparency will be added to the process of dismissal from the perspective of the individual employees, and they are assisted in re-entering the labour market at an early stage. This form of guidance will prevent long-term unemployment or might else prevent unemployment completely.The SOCOSE project started with a European comparison of existing outplacement interventions. The main focus, however, is the perspective of the individual that has been dismissed or is facing possible dismissal and his or her evaluation of this process. Crucial to this evaluation is the aspect of justice or fairness.First Results of this comparison across countries are presented, and the ongoing empirical studies are outlined on the basis of an exemplary case.     

Efficiency wages,unemployment and international factor movements

This paper examines the implications of unemployment resulting from efficiency wages for international factor movements in a standard Heckscher-Ohlin model where the relative size of the endowments of skilled and unskilled workers and the efficiency wage induced unemployment level in the unskilled labour market are simultaneously determined given the population, supply of capital and its distribution in the economy. Capital in the economy is used only to train individuals for the skilled labour market, where workers are fully employed. It is shown that the optimum labour inflow in the market with domestic distortion and the optimum capital inflow are always positive because they reduce the severity of distortion by raising employment and income for the residents. The income and employment of foreigners also increase. Under this situation the optimum labour or capital outflow on the other hand is always zero. These conclusions directly contradict the result obtained for international factor movements in the presence of exogenously determined unemployment.     

Efficiency wages,unemployment and international factor movements

"This paper examines the implications of unemployment resulting from efficiency wages for international factor movements in a standard Heckscher-Ohlin model where the relative size of the endowments of skilled and unskilled workers and the efficiency wage induced unemployment level in the unskilled labour market are simultaneously determined given the population, supply of capital and its distribution in the economy.... It is shown that the optimum labour inflow in the market with domestic distortion and the optimum capital inflow are always positive because they reduce the severity of distortion by raising employment and income for the residents. The income and employment of foreigners also increase. Under this situation the optimum labour or capital outflow on the other hand is always zero. These conclusions directly contradict the result obtained for international factor movements in the presence of exogenously determined unemployment."     

Beschäftigungspolitik in Deutschland: Fine-Tuning statt Globalsteuerung

Until 2005 unemployment rates in Germany jumped after every recession to ever-higher levels. Neoclassical micro-economists interpreted this trend as market failure and consequently narrowed the debate to labour market policies intended to improve the assumed malfunctioning of labour markets. Macroeconomic relations were largely ignored or even negated, which also characterises the current approach of the federal German government towards European economic policy. This approach has contributed to high unemployment in the eurozone. The economic trends in the US show that monetary and fiscal policies that do not exclusively focus on low inflation but that also aim to improve growth and employment will be much more promising for Germany and Europe.     

Beachtlicher Erfolg der Hartz-III-Reform

The Hartz reforms of the labour market constitute an important turning point in the evolution of the labour market in Germany. While the reforms consisted of four parts, it was especially the reform of the unemployment benefit system — the Hartz IV reform — that led to a strong response in the public and the media. Andrey Launov and Klaus Wälde demonstrate that the Hartz III reform of the German public employment agency (the ‘Bundesagentur für Arbeit (BA)’), that took place one year earlier, was much more successful in reducing unemployment. The reorganisation or the BA accounts for around 20% of the reduction of unemployment between 2005 and 2008. By contrast, the Hartz IV reform can account for only 5% of this reduction.     

Structural Reforms and Labour‐market Outcomes: International Panel‐data Evidence

This paper explores the impact of structural reforms on a comprehensive set of macro‐level labour‐market outcomes, including the unemployment rate, the average wage index, and overall and female employment levels and labour force participation rates. Together, these outcome variables capture the overall health of the labour market and the aggregate welfare of workers. Yet, to our knowledge, there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross‐country macro‐level on labour‐market outcomes other than the unemployment rate. After documenting the average trends across countries in the labour‐market outcomes up to 10 years on either side of each country's structural reform year, we run fixed‐effects ordinary least squares and instrumental variables regressions to account for the likely endogeneity of structural reforms to labour‐market outcomes. Overall, the results suggest that structural reforms lead to positive outcomes for labour. Redistributive effects in favour of workers, along the lines of the Stolper‐Samuelson effect, may be at work.     

Youth unemployment

Youth unemployment has been on the rise since the beginning of the crisis in 2008. Even more troublesome is the dramatic rise in the number of youth not in employment, education or training, which has led to widespread concerns about the impact on social cohesion and fears of a “lost generation”. Given the extreme differences in youth unemployment levels among member states, it is clear that no single labour market policy will be appropriate throughout the EU. There may, however, be opportunities for mutual learning on how to combat youth unemployment. This Forum explores youth unemployment in the EU via case studies of England, Belgium, Spain, Poland and Ireland. It also examines Germany’s dual vocational training system as one potential solution.     

Lessons Learnt from the Nordics: How to Fight Long-term Unemployment

This study examines policies that can successfully address long-term unemployment. It focuses on Denmark and Sweden, where, despite sizeable job losses during the crisis, labour market indicators are at present better than in any other EU country. By looking at the interaction between labour market flexibility (especially in hiring and firing regulations) and passive and active policies, we argue that well-designed active policies matter more than labour market flexibility for employment.     

MACROECONOMIC AND LABOUR MARKET POLICIES FOR EMPLOYMENT GENERATION IN SOUTH AFRICA

The recent advent of political democracy in South Africa has brought into sharp focus those macroeconomic and labour policies designed to combat unacceptably high unemployment levels, that have escalated steadily to present estimates of approximately 40 per cent of the Economically Active Population. The continuing implementation of neo-liberal orthodox policies, the authors maintain, will aggravate the problem. An alternative theoretical framework containing elements of a neo-Ricardian, post-Keynesian approach and based on research work of the Macroeconomic Research Group (MERG) is advocated. This approach focuses on State-led, demand-inducing policies, while not neglecting the supply side of the labour market in South Africa.     

HIRING STANDARDS AND LABOUR MARKET CLEARING

Consider a labour market with heterogeneous workers. When recruiting workers, firms set a hiring standard and make a wage offer. A more demanding hiring standard necessitates a better wage offer in order to attract enough qualified applicants. As a result, an efficiency wage effect is obtained. An equilibrium emerges which does not clear the labour market. The wage level depends on structural characteristics of labour supply, such as heterogeneity and mobility of the workers, but—in contrast to other efficiency‐wage models—not on the level of unemployment and is, thus, compatible with increasing unemployment as observed, e.g. in Germany.     

Contracts,the Spot Market Wage and Unemployment Benefits

This paper presents a model of the labour market with a contract and a spot market sector. Contracts are binding and enforceable, but unemployed contract workers are free to work in the spot market. The contracting wage is shown to be constant across states. A non‐trivial result shows that the spot market wage is increasing with product price. An increase in product price has an ambiguous effect on contract employment. An increase in unemployment benefits increases the contracting sector wage whilst stabilizing the spot market wage, and may have ambiguous effects on unemployment.     

Small Firms and Economic Transformation in Bulgaria

The pace of transition to a market economy has been slower in Bulgaria than in some other east European countries in the 1990s. Output levels in the state owned sector, which has not yet been subject to mass privatisation, have fallen sharply and there has been a dramatic increase in unemployment. There has however also been a rapid growth in the number of small firms, and the ability of this sector to generate new jobs will be an important component of labour market dynamics in the future. Some of the main characteristics of this emergent sector are identified on the basis of a sample survey of nearly 400 small Bulgarian firms, covering competitiveness, entrepreneurship, innovation, networking, labour relations and business performance of the small firms. Key features of a subset of small firms with an orientation towards employment growth are identified.     

Something unforeseeable happened? Natural rate theory and economic crisis

“Natural rate theory” — the application of the efficient market hypothesis to labour markets — has guided economic policy since the 1970s and laid the foundations for the design of major European institutions in the 1990s. Unfettered markets were declared to be stable, and consequently public policies and regulations were regarded as distortions. This led to a division of labour in which central banks were responsible only for price stability, governments for labour market reforms and unions for low wages. The European discussion focused almost exclusively on labour market reforms to reduce unemployment. Against the background of the recent dramatic drop in economic activity, this paper confronts natural rate theory with actual economic trends and argues that the predictions of the theory hardly fit the facts.     

Trade,Technical Change,and Labour Market Adjustment

This paper empirically examines three possible reasons for the high and rising unemployment of low‐skilled employees in Germany: (i) an upsurge in inter‐industry trade, (ii) a skill‐biased technical change, and (iii) a failure of labour market adjustment. The empirical analyses indicate that an exogenous wage‐setting process as well as a bundle of factors, including a skill‐biased technical and structural change, have contributed to the decline in relative demand for low‐skilled employees in Germany. Thus, economic policy in Germany should focus on improving the employability of workers in the lower segment of the labour market and on raising the adjustment flexibility, above all the flexibility of the wage structure, of the German labour market.     

Growth,income distribution and unemployment in a two-sector economy

We build a two-sector general equilibrium growth model with capital-intensive consumption goods and a labour-intensive investment goods sector to investigate the coexistence of growth and unemployment. The model uses heterogeneity in saving behaviour, introduces an effective demand problem, has full employment of capital with input non-substitutability and shows that the aggregate labour employment is determined by available capital along with commodity market equilibrium. The long-run growth may not be balanced, and under biased growth, the level of unemployment may monotonically increase or decrease over time, or may first increase (decrease) and then decrease (increase). Such possible unemployment paths help us tightly define “jobless growth”.     

The Creation of Service Markets to Solve Political-Sociological Problems: The Danish Home Service

In Denmark, the government has formulated a policy for creating a household service market by introducing economic support to Home Service firms. This political attempt at creating a market is analysed. Theoretically, it can test Gershuny's theory that households do their own housework by using machines, and the institutionalist market theory that households’ market behaviour is determined not only by the price, but also by social norms. The Home Service System is evaluated in relation to its development of business and its ability to solve the problems unemployment and moonlighting (informal work). The social consequences of an emerging household service sector are investigated. The conclusion is that it is very difficult to create a service market via the polity, and the Home Service system has not solved the problems it set out to overcome. Although it has introduced some improvements, at the same time it has created new labour market problems.     

The impact of economic globalisation on unemployment: The Malaysian experience

Malaysia plans to emerge as one of the high-income economies by 2020 through the Economic Transformation Programme. A key component of this programme is to adopt more trade liberalisation policies that can generate a variety of economic activities, particularly more jobs. Although the integration with the world market bears the promise of prosperity for the developing and transitional economies, such integration may also adversely affect such economies. Preceding studies regarding labour market and international trade policies are still inconclusive and raise questions that require further examination; particularly in terms of whether exposure to the external sector can create or destroy jobs. The present study evaluates how Malaysia labour market has responded to the economic globalisation of the country. The study focuses on the long-run impact of economic globalisation on unemployment within the period between 1980 and 2014. The study uses autoregressive distributive lags method to examine the pattern of the relationship. The results show that economic globalisation have significant and positive impact on reducing unemployment in Malaysia in the long run. These findings indicate that policy-makers in Malaysia should facilitate the economy globalisation to maintain the current low level of unemployment rate.