DP3646 Macroeconomic Fluctuations and the Timing of Labour Market Reforms

Author(s): Gilles Saint-Paul

Publication Date: November 2002

Keyword(s): labour market reforms , unemployment , employment protection , monetary union , firing costs , political economy

JEL(s): E32 , E52 , E61 , J60

Programme Areas: International Macroeconomics , Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP3646.asp

In this Paper, I analyse the pros and cons of implementing structural reforms of the labour market in booms versus recessions, in light of considerations of social efficiency, political viability, and macroeconomic fine-tuning. While the optimal timing of a reform depends on the relative importance of several conflicting effects, it seems clear that a reform should be accompanied by an expansionary macroeconomic policy. This makes structural reform more problematic in the context of the European Monetary Union.