Structural Convergence vs. Systems Competition: Limits to the Diversity of Labour Market Policies in the EMU

Frank Vandenbroucke

No 65, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Does a monetary union, for it to be successful, impose limits on the diversity of labour market policies and institutions in its member states? I argue that one should not overstretch functionalist arguments in this matter; the problem at hand is political and the challenge is to identify common standards and policy rules that are functionally relevant (taking on board a combination of arguments on what a wellfunctioning monetary union requires) and legitimate in view of shared aspirations across the member states. What is ‘needed’ and what is ‘imposed’ by monetary unification in Europe, depends on the fundamental aspirations that drive the European project at large. Already in the 1990s, reform in labour markets was justified by the advent of the monetary union. The European Employment Strategy emphasised supply-side flexibility: an agenda for flexible labour markets was interwoven with an agenda of investment in individual labour market opportunities and the development of ‘enabling’ policies. This essay develops a broader argument: to sustain a wellfunctioning monetary union that serves the EU’s aspirations, we need a consensus on labour market institutions that support symmetry and stability. Therefore, collective action and ‘protective’ policies are in order. Enabling and protective policies can be mutually reinforcing, in creating resilient social systems. With regard to symmetry, the member states need labour market institutions that can deliver on wage coordination; this limits the diversity of social systems cohabiting in a monetary union, since it excludes totally decentralised and uncoordinated bargaining. Institutions that monitor competitiveness should be embedded in social dialogue, and distributive concerns should be mainstreamed in the monitoring of competitiveness. Mainstreaming distributive concerns into competitiveness makes the ‘assignment’ for national social partners complex and challenging, but such an encompassing approach may stand a better chance to achieve legitimacy.

JEL-codes: E02 J38 J65 J88 O52 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ias
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