published in: Journal of Policy Modeling, 2005, 27 (3), 345-354
With the extension of its competence for social policy legislation in the Maastricht and
Amsterdam treaties, the EU has adopted a significantly new social dimension in the past ten
years. According to the Copenhagen criteria, the CEEC candidate countries have to adopt
the former via the acquis communautaire. This paper discusses the effect of an adoption of
this EU social law on future labor market performance in the CEECs. For this purpose, we
model and investigate the impact of institutional uncertainty (and of its elimination) on job
creation and job destruction in the CEEC candidate countries. We conclude that structural
change on CEEC labor markets tends to be fostered via reducing institutional uncertainty.
However, these kinds of benefits of the adoption of the acquis have to be weighed against
the danger that the adoption of inefficient EU social and labor policy regulations imposed by
the acquis might also entail significant risks for employment in the CEECs similar to those
which have materialized in the former EU. This rather pessimistic view can be substantiated
based on a public choice analysis of why the old EU members will want to impose the Social
Charter even though it will harm the new members. These risks consist of a significant
increase in hiring and firing costs and of higher wage rates. Based on a simple option value
analysis, we investigate and evaluate the trade-off between lower institutional uncertainty and
higher employment costs induced by the adoption of the acquis.
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