The labour mobility problems that are created when a common market for labour is extended to more countries have been a major concern of the European Union when considering expansion because member states have always feared their economies would suffer due to the cheap labour coming from poorer nations. Considering the fact that the recent expansion added ten members eight of which have significantly lower wages than other countries and large labour forces makes this concern even more pertinent. Since labour mobility is part of the core freedoms in the Union, the Treaty of Rome that was put into effect in 1958 committed member states to allow for the free movement of labour. This implied that nothing would stop labour from moving within member states and there will be no discrimination against workers based on their nationality, provided the nation is within the customs union. Even though the European Union has always had a great extent of labour mobility, the reason why the nations already within the union fear the consequences of the extension of the common market for labour after the enlargement are the rising unemployment rates observed in recent years. This is mainly because in the EU the job market has only grown by 0.5% from 1980 to 1993 as opposed to the 1% observed in Japan and the 1.5% observed in the US. This essay will therefore assess the extent to which the fears of the European Union have realistic foundations or not.
The Term Paper on European Union Member State
The Delegation of Trade Authority in the EU Even though, for the past several decades, member states of the European Union (EU) have been derelict with their power to act as independent players in international trade negotiations, they have recently begun to recapture some of their lost trade sovereignty. (Kennett 1996) Neither the European Court of Justice 1994 s opinion, nor the 1997 formal ...
In order to determine the effects of creating a common market for labour we first must see how wages are determined within these economies and why they differ. Wages are determined by the marginal productivity of the last labour unit employed because a firm can only afford to hire workers if they generate enough output to cover the costs of employing them. Thus wages are formulated where: However, the marginal productivity of labours differs amongst countries within the union for a number of reasons. For example a German worker that has had the ability to benefit from a good state education system that teaches its students a wide variety of skills will have higher marginal productivity than a worker from Poland that possibly had to drop out of school early to support his family. Also, the capital employed in Germany enables workers to maximise their marginal productivity since machinery employed in Germany is more technologically advanced than machinery used in Poland. Finally the fact that workers in Germany will receive more social benefits due to the institutional environment that pushes for minimum wages and more rights to workers will mean the workers will be more willing to work harder. Thus, from the comparison of Germany and Poland we have seen that since marginal product of labour will be higher in the wealthier nation, wages will be higher and when the market for labour opens the tendency will be for workers to act as rational economic beings and move from the low wage to the high wage economy as illustrated in the following diagrams.
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