Labor Flexibility

Going Where the Work Is

People enter a government-run employment office in Madrid
Queues at employment centers in Spain could be eased by countries like Germany.
  • Why it matters

    Why it matters

    • High unemployment in crisis countries endangers the currency union. Supporting immigration from these countries benefits the euro zone as a whole.
    •  
  • Facts

    Facts

    • Greek unemployment now stands at about 25 percent.
    • Despite a rebounding economy, Spain’s unemployment rate is around 23 percent.
    • Economically robust Germany had a jobless rate of 6.4 percent in March, a record low.
  • Audio

    Audio

  • Pdf

How can a crisis-ridden monetary union be stabilized without members leaving it more or less voluntarily?

Robert A. Mundell, who won the Nobel memorial prize for economics in 2000, recognized more than 50 years ago that high labor mobility must exist in an efficiently functioning common-currency area. Especially when there is only minimal flexibility with the downward direction of prices and wages in the regions of this currency space.

This seems to be precisely the situation in the crisis countries of the euro zone ― with the exception of Ireland. Labor mobility allows regions with low growth and employment to “export” part of their labor force to regions that, because of stronger growth, show a correspondingly higher demand for workers.

In this way, high unemployment can be avoided in one part of the monetary union, while in another part the boost to employment puts a damper on the upward trend in prices.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.