The Unassuming Economist

A WSJ blog notes: Changing euro-zone labor-market institutions has been one of the main goals of the bailout programs managed by the International Monetary Fund and euro-zone authorities over the last three years.

The thinking is: Europe’s labor markets – particularly those in the euro-zone periphery – need overhauls to allow wages to keep pace with changes in productivity and economic circumstances. This sounds like dry stuff, but it’s been one of the fund’s more controversial bailout recommendations. Making labor markets more “flexible” has in practice meant reducing the role of labor unions in wage-setting across much of southern Europe, leaving unions none-too-pleased with their more limited powers.

In a paper published on Friday, IMF economists led by Olivier Blanchard took a somewhat soul-searching look at the fund’s labor-market advice over the last three years. One interesting finding: The fund should “tread carefully” in its recommendations on collective bargaining, the paper suggests, since evidence about what kinds of bargaining arrangements work best is mixed. Read the full article here.