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Labor Market Reforms and Macroeconomic Policy in the Lisbon Agenda

This article explores the relationship between labor market reforms and macroeconomic policy in the context of the Lisbon Agenda. It discusses different approaches to achieving full employment and the role of institutional fitness in promoting dynamic, open economies.

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Labor Market Reforms and Macroeconomic Policy in the Lisbon Agenda

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  1. Different Roads to Full-EmploymentRonald Schettkatprofessor of economicsBergische Universitaet Wuppertal, Germany Labor Market Reforms and Macroeconomic Policy in the Lisbon Agenda Brussels March 20/21, 2006

  2. US Climbing up the stairway to higher employment requires labor market reforms Sclerotic labor markets in EuropeEurosclerosis ?

  3. One road to high employment? Well functioning labor markets are a necessity for dynamic, open economies But are well functioning labor market sufficient? Was the assertion right that European labor markets are overly rigid?

  4. Institutional Fitness Landscapes Economic fitness Economic fitness low high low high regulation regulation

  5. The example of the Netherlands • The welfare state institutions in the Netherlands were after the reforms more generous than the German institutions • Dutch dismissal protection is much stronger than in Germany • Yet: the Netherlands achieved record low unemployment rates in the 1990s • Dutch macroeconomic policy:monetary, fiscal, wage export surplus

  6. Can downward wage flexibilityintegrate the low-skilled unemployed?Expectation wage compression hypothesis employed unemployed EU US

  7. Skill Structure for the Employed and the Unemployed US Germany Employed .10 .10 0 250 500 0 250 500 D1 (239) Median (291) D1 (207) Median (292) Unemployed .10 .10 0 250 500 0 250 500 D1 (210) Median (277) D1 (119) Median (257)

  8. In 1970 Europe and the US and were on the same iso-employment curve but the US had higher productivity and income product demand/ capita [d] demand = supply US 1970 demand Europe 1970 labor demand / output [s] rising productivity

  9. In 2000 productivity in Europe has converged to US productivity, but employment (participation and hours) is much higher in the US than in Europe product demand/ capita [d] demand = supply US 2000 US 1970 Europe 2000 Europe 1970 labor demand / output [s]

  10. Climbing up the stairway to high Employment requires well functioning labor markets “Such specific policies should, of course, be accompanied by support to aggregate labour demand and, more generally, higher economic growth – issues which go beyond the scope of this volume” John P. Martin Director for Employment, Labour and Social Affairs

  11. Eurosklerose through the design of macroeconomic Institutions in Europe? €-sklerose ?

  12. The End Thanks For more information: www.wiwi.uni-wuppertal.de/Schettkat

  13. But is the theoretical assertion correct that well functioning labor markets are sufficient to Europe suffers from distortet labor markets

  14. Americans are workaholics, Europeans prefer leisure?

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