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International Monetary Fund
The Republic of Estonia’s 2007 Article IV Consultation reports that surging domestic demand has widened the external current account deficit and pushed the economy against capacity constraints. Wage increases have begun to erode competitiveness and kept inflation above the Maastricht threshold for euro adoption. There are signs of an incipient slowdown, but a resurgence of demand and an eventual hard landing, with growth stagnating, cannot be ruled out. A strong fiscal stance is needed to subdue wage and income expectations and improve the odds of a soft landing.
International Monetary Fund. Research Dept.

overall EU structural unemployment has fallen by only ¾ percent since 1997. Across a range of structural indicators, the EU labor market continues to compare unfavorably to more competitive labor markets (see the figure). For example, EU unemployment benefits and marginal effective tax rates on additional income are about twice as high as U.S. levels. Nevertheless, only a few EU countries have lowered reservation wages through adjustments in benefit levels in the past few years—generally in the area of tightening eligibility or work requirements—while labor income

Giang Ho and Ms. Kazuko Shirono
The large influx of migrants to Nordic countries in recent years is challenging the adoptability of Nordic labor market institutions while also adding to potential growth. This paper examines the trends, economic drivers, and labor market implications of migration to Nordic countries with a particular focus on economic migration as distinct from the recent large flows of asylum seekers. Our analysis finds that migration inflows to the Nordics are influenced by both cyclical and structural factors. Although migration helpfully dampens overheating pressures during periods of strong demand, and over the longer term will cushion the decline in labor supply from population aging, in the near-term unemployment can rise, especially among the young and lower-skilled. The analysis highlights the need to adapt Nordic labor market institutions in a manner that better facilitates the integration of migrants into employment. In particular, greater wage flexibility at the firm level and continued strong active labor market measures will help improve labor market outcomes among immigrants.
Dilyana Dimova

Front Matter Page European Department Contents ABSTRACT I. INTRODUCTION II. LITERATURE REVIEW III. MAJOR LABOR TRENDS IN THE EU A. Evolution of Labor Share by Skill and by Industry Sectors B. Shift-Share Analysis C. The Changing Landscape of Structural Factors in the EU Labor Market IV. METHODOLOGY A. Data B. Cross-Country Panel Analysis V. RESULTS A. Expected Contribution of Structural Factors B. Sectoral Labor Share C. Skill Labor Share VI. SUMMARY AND POLICY IMPLICATIONS FIGURES 1. The Labor Share

International Monetary Fund

wage growth, the authorities agree that recent productivity and real wage developments call for close monitoring. The employment level has shown a healthy increase over the last years, but is expected to level off as the pool of potential workers is limited. Opening of the EU labor market has contributed to a decline in unemployment to very low levels, but also to wage pressures, including in the public sector. In the future, integration with the EU market may increase labor supply, as Estonia’s labor market is fully open to workers from the EU, including the new

Giuseppe Carone and Declan Costello

how population aging will affect EU labor markets, economic growth potential, and public finances. Published in early 2006, the projections—which assume no change in current policies and follow up on an assessment published in 2001—point to the need for substantial policy reform and adjustment. Dramatic repercussions for growth and labor Although most of the debate on aging concerns the budgetary cost, the most immediate impact will be felt in the labor market. EU projections, however, point to a mixed picture, with improvements in employment delaying somewhat