Economic Integration, Labour Market Institutions and Migration As the extent of economic integration approaches that of the United States, labour market institutions, and labour market outcomes may also begin to resemble their American counterparts. [..]Full an irreversible economic integration may call for harmonization of social and labor-market institutions within the European Union. Guiseppe Bertola (2000)
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Economic Integration, Labour Market Institutions and
Migration
As the extent of economic integration approaches that of the United States, labour market institutions, and labour market outcomes may also begin to resemble their American counterparts.[..]Full an irreversible economic integration may call for harmonization of social and labor-market institutions within the European Union.
Guiseppe Bertola (2000)
A Brief Overview
Europe mostly fails on the labor mobility criterion
A substitute to labor mobility is labor market flexibility
How does Europe do on this front?
Dismal Labour Market Performance
Unemployment rate (%)
0
2
4
6
8
10
12
1970 1974 1978 1982 1986 1990 1994 1998 2002
EU Euro area USA
Standardized Unemployment Rate
Currently…
Similar…Different
Proportion of long-term unemployment
Country Percentage Country Percentage
France 41.6 Spain 37.7
Germany 51.8 Sweden 18.9
Italy 49.7 Switzerland 33.5
Japan 33.7 UK 21.4
Netherlands 32.5 USA 12.7
o Percentage of people who are unemployed for one year or more
Participation Rate
Country Labor Force Participation Rate
Country Labor Force Participation Rate
France 68.5 Spain 73.2
Germany 77.8 Sweden 79.5
Italy 63.1 Switzerland 88.2
Japan 80.3 UK 76.2
Netherlands 79.8 USA 75.2
Denmark 83 Turkey 52.6
Many other indicators of trouble
Not just the unemployment rate, also: Low rates of labour participation Youth unemployment Duration of unemployment spells
General picture Many people do not hold jobs People can remain unemployed for years
running Problem deeper in larger countries, with
recent improvements in the UK and the smaller countries
Microeconomics of Labor Market Rigidities
Why? General assessment is that labor markets
are rigid in most of Europe Real Wage Stickiness Restrictions on hiring and firing Restrictions on hours worked Minimum wages High unemployment benefits as disincentives
to search jobs
A deep conflict
These features have been introduced to fight labor market imperfections and/or social objectives
They make labor market rigid but serve other purposes
No universal response to this deep conflict
Market Failures: A Few Examples
Market failure Standard solution Economic Cost
The possibility for one side of the market to exercise excessive power
Minimum wages, labour protection laws, mandatory negotiations
Reduces competition on the labour market
Information asymmetry: no good knowledge of workers’ skills and effort at work
Collective wage negotiations
Reduces competition on the labour market
Workers are vulnerable to job uncertainty
Mandatory health and unemployment insurance, retirement benefits
Raises labour costs and reduces demand for labour
What is the link with economic integration?
Deepening integration exacerbates competition
Firms compete by reacting quickly and forcefully to opportunities or shocks
Inflexible labor markets reduce the ability of firms to react
Indirectly, social systems compete against each other
The delicate balance achieved in each country becomes challenged
Economics of Social Dumping a reduction of the level of social protection
due to competition with the new Member States Why?
Wages are much lower in NMSs. The level of social protection is also considerably
laxer in NMSs.
Economics of Social DumpingGermany=100 (2005)
Country Weekly private sector earnings Labour productivity