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Some theory on the sustainability of different levels of social protection in a Monetary Union.

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    ABSTRACT: this paper we shall examine the issue of the downward levelling of social protection in greater depth by answering two questions on how important this problem may become in the context of the EMU: a) To what extent has `benign neglect' of the possibility of a downward levelling of social protection been justified until now, at least in those countries where it is most developed ? b) How great is the problem of social dumping likely to be in terms of deviation from the actual level of social protection with respect to the `optimal'? The first question concerns the influence that the successive phases of European integration have exerted on social protection in the Member States. Can one detect a trend towards convergence in incomes and social protection and, if so, in which direction? We consider that briefly in this paper. The question we focus on is an estimation of the cost incurred through the lack of co-ordination in the monetary union as it is today. The approach we take is to compare the existing levels of protection with the optimal level of protection which a fictitious (European) central planner might aim for. We will not consider employment or wage effects from the transition to economic unification or the trade policy consequences of labour market imperfections as shown by, for example, Brander and Spencer (1988) and Mezzetti and Dinopoulos (1991). Instead, we concentrate on the equilibrium outcomes of the EMU as such (like Abraham, 1993 and 1994, Lejour, 1995 and Lejour and Verbon 1996). We use a standard two-country general equilibrium model of international trade in differentiated goods (e.g. Helpman and Krugman, 1985) without trade barriers but with a common currency, which is extended along three lines. First, in order to take better account of European ...
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    ABSTRACT: We analyze the consequences of product market integration in a simple two-country, two-sector, general-equilibrium model with imperfect competition due to economies of scale. In contrast to the existing literature we take explicit account of the labor-market structures in the integrating economies. It turns out that the specific labor-market structures are very important for how integration affects total production and product market structure in a particular economy. However, integration always gives rise to a welfare gain in both economies. Copyright Kluwer Academic Publishers 1994
    Open Economies Review 01/1994; 5(1):115-130. · 0.44 Impact Factor

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