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The Economic Implications of EMU for Employment
Dr Gerard Lyons. (November, 1998)

Delivering the first of Politeia’s 1999 lecture series EMU and… , Dr Gerard Lyons, Chief Economist of the bank DKB International, warned that joining the Euro will have disastrous consequences for jobs. Europe, he explained, has had a dismal record for new jobs since 1970, creating them at a tenth the rate of the US, and lagging behind even Japan. One in ten people are registered as unemployed in Europe and there are more who do not register. Just 60% of the working age population in Europe has jobs, compared to 70% in the UK and nearly 75% in Japan and the US.

According to Lyons, there are both demand and supply side reasons for low employment in Europe. There have been excessively tight policies over a long period. Even when these have been relaxed, unemployment has remained high because of the inflexibility of the labour markets. Regulations, excessive non-wage costs and a higher tax on labour compared with capital have all discouraged firms from recruiting new workers. The demand and supply side problems require demand and supply side solutions, but there is no reason to expect that they will be provided. EMU lacks the flexibility to stimulate demand and the inflexibility of labour in Europe is deeply institutionalised - -and will be imported into the UK. Worker rights are important but there is no balance within Europe. So much so that Europe suffers from an insider-outsider problem. Europe has employment problems for young people, women, men in their late 50s and low skilled workers. These deep rooted problems more than offset concerns about America’s low productivity and wage dispersion.

Lyons ended by warning that the EMU will not result in convergence across Europe, but rather in the clustering of industries in particular locations, just as in the US. There will be large regional disparities and pockets of high unemployment. Dr Lyons explained that the poor jobs performance in Europe is not about to be reversed. ‘European Monetary Union will make Europe’s jobs problems worse. EMU stands for Even More Unemployment’.

When giving this lecture, Dr Gerard Lyons was Chief Economist at DKN International, the London owned subsidiary of the Dai-Ichi Kangyo, one of Japan’s largest banks. He has been Chief UK Economist of Swiss Bank Corporation and of stockbroker Savory Milln and Economist at the Chase Manhattan Bank. He is now at Standard Chartered Bank.

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