Does joining the European monetary union improve labor productivity? A synthetic control approach

We adopt the innovative synthetic control method (SCM) to study the causal effect of joining the European Monetary Union (EMU) on member countries’ labor productivity. Comparing labor productivity between members and their synthetic counterparts, we find that Belgium, France, Germany, Ireland, Italy...

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Bibliographic Details
Published in:Journal of productivity analysis 2023-06, Vol.59 (3), p.287-306
Main Authors: Zhuang, Hong, Wang, Miao Grace, Ersoy, Imre, Eren, Mesut
Format: Article
Language:English
Subjects:
Accounting/Auditing
Business cycles
Econometrics
Economic growth
Economics
Economics and Finance
European Monetary Union
Eurozone
International finance
Labor market
Labor productivity
Macroeconomics
Microeconomics
Operations Research/Decision Theory
Sovereign debt
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Summary:We adopt the innovative synthetic control method (SCM) to study the causal effect of joining the European Monetary Union (EMU) on member countries’ labor productivity. Comparing labor productivity between members and their synthetic counterparts, we find that Belgium, France, Germany, Ireland, Italy, and the Netherlands experienced significant labor productivity gains from the eurozone membership. Our results are robust to a series of sensitivity checks. We also observe similar effects of EMU on members’ total factor productivity (TFP). Furthermore, we explore potential channels through which a monetary union can influence members’ labor productivity. Our results show that business cycle synchronization with other members and similar labor market institutions to other members contribute to an EMU country’s labor productivity gains.
ISSN:0895-562X
1573-0441
DOI:10.1007/s11123-023-00668-1