EMU Labour Markets Two Years On: Microeconomic Tensions and Institutional Evolution

1 Introduction The purpose of this study is to shed light on the likely impact of EMU on labor market performance and institutions. In particular, the following three broad questions are addressed: • In light of recent experience, theoretical insights, and institutional configurations, what is the likely impact of EMU on labor market outcomes? • How is EMU going to affect ongoing reforms of labor market institutions and, more broadly, social protection systems for non-employed individuals in working age? • Has EMU already affected labor market performance and/or the pace and nature of reforms in the relevant area? We proceed as follows. We start by characterizing the balance of employment, wage, and fiscal objectives and concerns in the member countries' current labor market configurations, with particular attention to distributional issues. Then we move on to discuss the impact of EMU on those configurations. Finally, we assess the character of reform tensions theoretically expected and actually observed in the EMU area. Section 2 offers a concise review of theoretical insights and empirical indicators on the motivation and effects of labor market institutions as observed in European countries' historical