| The objective of this paper is to analyze the impact of achieving EMU’s fiscal convergence criteria on Greek labor market. For this purpose we combine the simulation results of a partial equilibrium macroeconomic model for Greek economy with a decomposition analysis based on the econometric estimation of a translog dual cost function. The EMU fiscal convergence criteria are used, through the macroeconomic model, to simulate changes in national income, inflation, interest rate and fiscal deficit via two alternative scenarios, i.e. a 6- and a 10-year convergence plan. Then, these results are used to simulate changes in the derived demand for labor and consequently, on the unemployment rate. According to our results it is preferable for Greece to adopt a stepwise (10-year convergence plan) instead of a instantaneous (6-year convergence plan) process. In either case there are only limited differences in terms of changes in fiscal variables, but there are tremendous differences in terms of job losses. Thus, given the inflexibility of labor market in Greece, it seems more reasonable for Greece to be in the second group of countries entering into EMU. |
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