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

Zhuang, Hong; Wang, Miao Grace; Ersoy, Imre; Eren, Mesut

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.

MONETARY unions; LABOR productivity; INDUSTRIAL productivity; ECONOMIC & Monetary Union; BUSINESS cycles; EUROZONE; LABOR market

Journal of Productivity Analysis, 2023, Vol 59, Issue 3, p287

0895-562X

Academic Journal

10.1007/s11123-023-00668-1