EMU and European Labour Markets

Is Economic and Monetary Union the long expected cure for European unemployment as often proclaimed, or does EMU stand for Even More Unemployment? In this paper we try to shed some light on the effect monetary union could have on European unemployment. The issue is not only relevant from a theoretical perspective, but it is also of utmost social importance. Many European countries struggle with high and persistent unemployment. Table 1 shows equilibrium unemployment rates in the EMU countries. We consider equilibrium unemployment rates to correct for differences in the business cycles among countries. Another reason to consider equilibrium unemployment rates is that standard macroeconomic theory tells us that monetary and fiscal policy have no lasting effect on equilibrium unemployment1. The data show that average unemployment in EMU is almost twice as high as in the non-EMU countries. Moreover in five EMU countries (among which France, Germany and Italy) equilibrium unemployment has increased in the 1990s, while the other EMU countries experienced stable or decreasing equilibrium unemployment rates. In the non-EMU group only four out of eleven countries saw their equilibrium unemployment rates increase in the 1990s (among which two potential EMU members, viz. Greece and Sweden). The other countries (like the US and the UK) registered stable or falling equilibrium unemployment rates.