Country Size and Labor Market Flexibility in the European Monetary Union: Why Small Countries Have more Flexible Labor Markets

Holger Zemanek

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the impact of country size on labor market flexibility in a monetary union with a common monetary policy as conducted in EMU. I apply a Barro-Gordon framework and test its result empirically for EMU. Results confirm that small countries demand higher labor market flexibility than large countries. Small countries use labor market flexibility to be protected against monetary policy in favor of large countries and use flexibility as a substitute for monetary policy. Thereby, national inflation volatilities and unemployment volatility are important determinants. Business cycle synchronization reduces the need of small countries for additional labor market flexibility.

Keywords: Structural reforms; labor market flexibility; European Monetary Union; country size; Barro-Gordon model; business cycle synchronization (search for similar items in EconPapers)
JEL-codes: D78 E42 E52 E61 F15 (search for similar items in EconPapers)
Date: 2009-07-27
New Economics Papers: this item is included in nep-lab and nep-mac
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https://mpra.ub.uni-muenchen.de/19131/1/MPRA_paper_19131.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:16482

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