محافظه کاری بانک مرکزی و تنظیم بازار کار
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|23128||2005||19 صفحه PDF||سفارش دهید||7299 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : European Journal of Political Economy, Volume 21, Issue 2, June 2005, Pages 345–363
How does central bank conservatism affect labor market regulation? In this paper, we examine the economic forces at work. An increase in conservatism triggers two opposite effects. It reduces the inflation bias of discretionary monetary policy and hence the cost of regulation. It also increases unemployment variability, making regulation more costly. In combination, the two effects produce a hump-shaped relation between conservatism and labor market regulation. To test this prediction, we use data for 19 OECD countries for the period 1980–1994. Our proxies for regulation are unemployment, different labor market institutions, and indices of labor market regulation. Conservatism is proxied by two common measures of central bank independence. We find support for the prediction of a hump-shaped relation between conservatism and labor market regulation.
Monetary policymakers often express concern about structural problems in the labor market. Typically, they point out that monetary policy is not the solution to structural problems and that such problems therefore need to be addressed by other policy measures. This concern is easy to understand, because apart from having their own merits, policies aimed at solving structural problems would also facilitate the central bank's efforts to maintain price stability. The problem is that substantial political costs are a major impediment to labor market deregulation. In view of this, it seems interesting to explore how the prospects of labor market regulation are influenced by monetary policy. Although monetary policy is neutral in the long run and cannot by itself reduce equilibrium unemployment, we will argue that the monetary policy regime can have real effects by influencing the government's preferred labor market policy. The starting point of our analysis is the well-known time inconsistency problem associated with discretionary monetary policy, first analyzed by Kydland and Prescott (1977) and Barro and Gordon (1983). The basic idea is that wage setters recognize the policymaker's incentive to exploit the short run Phillips curve and foresee the inflation created by monetary policy. In equilibrium, structural unemployment is unaffected by monetary policy, but inflation is positive. By appointing a conservative central banker, the inflationary bias can be reduced at the expense of greater unemployment variability, as suggested by Rogoff (1985) and others. In view of this trade-off, there will be two effects of increased conservatism on labor market regulation: a credibility effect and a stabilization effect. The credibility effect arises because labor market regulation, by increasing equilibrium unemployment, worsens the credibility problem and hence equilibrium inflation. Average inflation is relatively low if the central bank is very conservative and unemployment enhancing regulation is then not very costly in terms of higher inflation. Hence, there will be more labor market regulation if the central bank is more conservative. The stabilization effect works in the other direction. Conservatism increases the variability of unemployment and therefore aggravates the consequences of labor market regulation. To put it differently, if the central bank does not act to avoid bad outcomes, the government has no other alternative than to deregulate the labor market to alleviate the consequences of shocks to unemployment. In this paper, we add a government and labor market policy to a simple Barro and Gordon (1983) model of discretionary monetary policy and analyze the interaction between the credibility and the stabilization effect. We show that in combination, the two effects give rise to a hump-shaped relation between conservatism and labor market regulation. The reason is that for very high levels of conservatism, the credibility problem is minute. At the same time, the stabilization effect is very strong because the central bank makes little effort to stabilize unemployment. At the other extreme, very low levels of conservatism give rise to a severe credibility problem, whereas the stabilization effect is negligible because the central bank puts much effort into stabilizing unemployment. From this, it follows that neither effect is negligible for medium levels of conservatism. But because each effect is relatively weak compared to the extreme cases, the model predicts more regulation for medium levels of conservatism. We also carry out an empirical investigation of the relation between central bank independence (as a proxy for conservatism) and unemployment, labor market institutions, as well as three indices of labor market regulation in 19 OECD countries. The empirical findings provide support for the existence of a hump-shaped relation between conservatism and labor market regulation. This paper belongs to a growing literature claiming that monetary regimes influence labor market policy. Unlike this paper, the focus in the literature has been on whether a common monetary policy will promote labor market reforms. Berthold and Fehn (1998) argue that labor market reform will be lower if monetary policy is coordinated (as in EMU). This result hinges on the assumption that decisions on labor market reform are made nationally. Hence, lower unemployment in a single country will only reduce inflation in EMU marginally. Consequently, the incentives for reform are greater outside than inside EMU. The same argument has been advanced by Calmfors (2001), who also recognizes that if national governments have precautionary motives, there may be more labor market reform within EMU. Sibert and Sutherland (2000) also expect less labor market reform inside than outside EMU, but for slightly different reasons. They argue that in the presence of international spillovers, uncoordinated national monetary policies lead to higher inflation than a monetary union would. Hence, there will be less reform within a monetary union because a reform brings about a smaller decrease in inflation when inflation is already low. We consider mechanisms similar to the ones mentioned above, but we depart from the focus on monetary union. Because there has been a move towards more independent and conservative central banks across the world, we find it interesting to analyze how this could affect labor market policy.
نتیجه گیری انگلیسی
Although monetary policy is not the solution to the problem of structural unemployment, political decisions to regulate the labor market could be influenced by the general policy stance of the central bank. Such an influence, however, seems to contradict conventional wisdom because numerous studies have failed to find a link between unemployment and central bank independence. In this paper, we have argued that a nonlinear relation is needed to capture the forces at work. In particular, due to the trade-off between credibility and flexibility, we expect the relation between conservatism and regulation to be hump-shaped. Interestingly, our empirical investigation provides evidence in favor of this prediction. We find that unemployment is affected by central bank independence, and that this effect appears to work through labor market institutions. Unemployment generating labor market regulation is overrepresented in countries with medium levels of central bank independence. The most important limitations of this study are the small data set and the inexact measure of central bank conservatism. Therefore, we believe that future studies should focus on expanding the data set and trying to define and measure the concept of conservatism more accurately.