ASYMMETRIC TRANSMISSION MECHANISMS AND THE RISE IN EUROPEAN UNEMPLOYMENT - A CASE OF STRUCTURAL DIFFERENCES OR OF POLICY FAILURES

Recent literature has emphasised how asymmetries in the relationship b etween inflation and unemployment make it more difficult to stabilise prices or reach 'full' employment. The same problem arises in Europe d ue to large disparities in the rates of unemployment, this time becaus e of the integration of product markets coupled with imperfect factor mobility. Are these unemployment disparities due to an inappropriate c hoice of policies, or to structural differences in market 'fundamental s'? We show that it is the latter which imposes the bulk of the ineffi ciencies in Europe and that during the 'new EMS' period, the European economies were characterised by a centering tendency in labour costs. But a two-speed regime has emerged since 1991. (C) 1998 Elsevier Scien ce B.V. All rights reserved.