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

Zhuang H., Wang M. G., Ersoy İ. S., EREN T. M.

JOURNAL OF PRODUCTIVITY ANALYSIS, vol.59, no.3, pp.287-306, 2023 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 59 Issue: 3
  • Publication Date: 2023
  • Doi Number: 10.1007/s11123-023-00668-1
  • Journal Name: JOURNAL OF PRODUCTIVITY ANALYSIS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, CAB Abstracts, EconLit, INSPEC, Veterinary Science Database
  • Page Numbers: pp.287-306
  • Keywords: Labor Productivity, Eurozone, European Monetary Union, Synthetic Control Method, SINGLE CURRENCY, ECONOMIC COSTS, TRADE, EMU, OUTPUT, AREA, INTEGRATION, BENEFITS, GROWTH, INPUT
  • Marmara University Affiliated: Yes

Abstract

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.