Integration Theory and European Labour Markets

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Abstract
Standard integration theory assumes that the law of the price holds within individual countries which can thus be treated as homogeneous units. Integration of two or more countries then amounts to removing the barriers to free exchange between them. Recently this conventional approach has been increasingly called into question. In the first place, as economic interpenetration grows, it becomes more important to recognize that national systems display many internal disparities and heterogeneities. Moreover, as recent advances in economic theory emphasize, transaction costs and lack of information prevent market agents from taking advantage of all profitable exchanges. As a result, most market situations cannot be seen as self‐clearing or capable of integrating spontaneously. Thus, institutional interventions and other co‐ordination mechanisms are required to promote economic adaptability. Viewed from this standpoint, the Social Charter and related initiatives can be seen as promoting orderly integration of the Community's labour market.

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