What question did this study set out to answer?

The aim is to examine how labor market policy reforms affect economies within the economic union.

February 19, 2026Oxford Open Economics0 citationsOpen Access

Coordination and transmission of labor market policies in the economic union

PLPovilas LastauskasVilnius University JSJulius StakėnasVilnius University

Key Points

The aim is to examine how labor market policy reforms affect economies within the economic union.
Developed a multi-country model with intermediate-input trade and frictional labor markets.
Estimated using a global vector autoregression for the EU-15 countries.
Analyzed the propagation of reforms through input-output linkages.
Assessed the impact of coordinated policy changes on employment and GDP.
Coordinated employment-protection reforms significantly increase employment and GDP.
Single-country shocks show minimal effects, indicating the importance of coordination.
Joint reforms lead to a slight rise in long interest rates.
Results are robust across trade-based and theory-based analyses.

Abstract

Abstract We build a multi-country model with intermediate-input trade and frictional labor markets and estimate it using a global vector autoregression for the EU-15. The framework traces how reforms propagate through input-output linkages and “import-back” feedbacks and shows that theory-based long-run restrictions and transmission weights materially affect inference. Domestic (single-country) shocks have modest, often insignificant effects. By contrast, coordinated policy changes matter: joint employment-protection reforms durably raise employment and GDP, with some increase in long interest rates. These results are robust under trade- and theory-based propagation and remain when policy variables are treated as predetermined.

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