Unemployment, Labour-market Reform and Monetary Union

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Abstract
The paper analyses various mechanism through which monetray union in Europe may affect unemployment. The focus is on the political incentives for labour-market reform. There will be more reform outside than inside the EMU to the extent that a national inflation bias can be reduced. But if there is a precautionary motive for low average unemployment in order to reduce the utility cost of macroeconomic variability, there could be more reform in monetary union. Labour-market reform to increase wage flexibility as a substitute for domestic monetary union on unemployment is ambiguous.
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