Respondent

Kostiuchenko Nataliia Petrivna

Theme

Influence of ECB policy on employment in European Union during debt crisis

Defence Date

01.07.2017

Annotation

The thesis is devoted to fundamentally conclude on the effects ofconduct of monetary policy on the employment levels in European Union, to systemize different approaches to the question of employment regulation using monetary instruments, identify most important models employed according to the most famous economic schools, to estimate the benefits and shortcomings of the use of inflation and interest rate for reduction of unemployment in member and non-member Eurozone countries.

The thesis throws light on the fundamental challenges for monetary policy during crisis, particularly, asymmetric shocks, budget transfers, corruption, differences in law systems.

The thesis reveals on the one hand, that the influence of inflation on the level of unemployment in all countries considered, except for Austria is inconsiderable. That is why indirect influence on employment of ECB using inflation targeting is extremely low. Furthermore, such important factor as foreign direct investments inflow doesn’t increase the number of working places, but on the contrary, reduces it due to implementation of new technologies, limiting unqualified labor force opportunities. On the other hand, interest rate has a more significant impact on unemployment in the three groups of countries. That is why, it can be stated that this is the most effective monetary instrument that can be used to increase employment level in EU and Eurozone countries. However, the use of this instrument, as seen from the research conducted, can be ineffective when a country experiences serious economic problems. For instance, ECB can’t influence unemployment using interest rate in Hungary. Apart from this, the GDP level has a significant impact on the unemployment level in countries using their own currency and in the group of Baltic countries. A higher GDP level provides for a low unemployment level. In respect of Baltic countries, only in Lithuania the interest rate has an important impact on unemployment level.

The thesis puts emphasis on the influence of productivity of labor on the level of unemployment as the most significant factor among all countries. It is shown from the regressions built using OLS method that this variable has the highest and most significant correlation with the unemployment level. This result goes in hand with the Porter’s competitive advantage theory.

When examining the perspectives of joining Eurozone for new member-countries, the following conclusion may be drawn: joining Eurozone during crisis has a negative effect on the economy of the new member-country, because it would be conditioned to finance and share debts of crisis affected countries. The country will enjoy the benefits of this kind of membership only in a long-term perspective.

An empirical analysis dedicated to the question of trust to public institutions, taking into account macroeconomic variables was conducted. A model of Farvaque et al. (2010) was employed. In particular, it is shown how level of unemployment affects trust to ECB among member-countries. Based on the results, the following conclusions have been made: it was revealed that the strongest variable that influences trust is occupation, with a strong significant negative impact for the trust as the individual is unemployed, with a value of -1,29. Negative impact on the trust has also a situation of being retired, with a value of the regressor of -0,97. The years of education have a meaningful impact as well, in particular, the more years the individual studies the more the trust to the ECB he has. The social class affinity is also significant for the trust, in particular if the individual belongs to the upper class. The effect of the economic expectation are approximately equal, with a small tendency to the negative impact caused by pessimistic expectation (- 0,62 ) against a positive effect of optimistic expectation. Finally, small but significant positive effect have being affined to the right policy point of view and the gender.

The theoretical assumptions for Ukraine were tested using the model, employed for European countries, based on OLS regression analysis method. The results show that fighting unemployment using the instrument of inflation will not be effective. There is a positive correlation between unemployment level and inflation, which doesn’t correspond to the general theory of employment. It can be concluded that the main factor of reducing unemployment in Ukraine shall be the rise in labor productivity. That is why Ukraine should concentrate on socio-economic reforms that would be aimed at rising qualification of labor force and the quality of education and professional skills.

Key words: monetary policy, employment, unemployment, interest rate, inflation, GDP, productivity, ECB, EU.

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