Labor Market Rigidities and EMU

Labor Market Rigidities and EMU

This paper explores the interaction between labor market deregulation, monetary union and unemployment. Monetary policy autonomy and monetary union are compared in their influence on the optimal level of labor market deregulation consented to and wages demanded by labor unions. EMU leads to higher real wages and higher unemployment when unions set their policies independently, but labor market regulation is unaffected. This is in constrast to results derived earlier in the literature. The paper also asks whether union cooperation improves on the non-cooperative results. That is not necessarily the case.