DP3646 | Macroeconomic Fluctuations and the Timing of Labour Market Reforms

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20/11/2002

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Abstract

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.