FLEXICURITY SPECIFITIES IN SMALL OPEN ECONOMIES. THE BALTIC STATES

The Eastern enlargement of the European Union and the requirements of the Euro-pean Monetary Union (EMU) increase the pressure for flexibility of labor markets in both the old and the new EU member states. In the framework of EMU and in order to follow the requirements of the optimal currency area (OCA), the growth of labor market flexibility is desirable because it helps to offset asymmetric shocks, especially when other means, such as monetary and fiscal policies, are constrained. If labor markets and institutions do not become more flexible, the growth of market disequi-librium is highly probable in both groups. However, the pressure for higher flexibil-ity arises also from the currently high levels of unemployment and low employment levels, as well as the large size of the informal economy in transition countries.[...]