Economy and labor markets in Europe

Structural reforms need more time than stimulus packages or consolidation measures to unfold their full impact on the economy. Nonetheless, the time needed for structural reforms to show initial successes is tolerable. In particular, the labor market reforms carried out in Germany in 2003 and 2005 demonstrated that, fairly soon after implementation, a recovery on the labor market emerged in 2006. In Spain and Portugal the reform process was launched around two years ago, in Italy around one year ago. It is therefore not rash to expect positive effects to become visible next year or the year after next, assuming implementation makes further headway.

The reform process in Italy, Spain and Portugal encompasses a host of individual measures, each with different time lags before they take effect. Changes in benefit entitlements can have swift positive effects via increased work incentives, relaxing employment protection laws are only likely to start paying off in phases of economic stabilization. That is why a longer period is needed for the structural reforms to take full effect. Studies on the quantitative effects of structural reforms predominantly look at a ten-year period after the reforms come into effect.

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