Liberalising product markets reduces the rents enjoyed by firms and therefore creates pressure for the introduction of more flexibility in labour markets. Equally, more competition makes profits more volatile and increases the need for a more diversified portfolio in order to hedge the higher risk. Thus, the slow down of product market reforms has direct consequences for the reform of other markets.

However, reforms in the product market might also be hindered in anticipation of the potential effects in other markets: This was for example the case of the controversial Services Directive where the possible effects on labour markets played an important role on its watering down.

In order to fully exploit the synergies between financial, product and labour market reforms, such reforms need to take into account the links between the three markets. They must also tackle simultaneously all affected markets, without expecting that reform in one market will automatically leverage reform in the others.

This is from a policy brief (.pdf file) of the Bruegel think tank, which 'does not stand for any policy doctrine'. The brief is quite interesting, I wrote a little about it here. But this seems to read like 'Product market reform leads to lower profits, leading to demand for cheaper labour that can be laid off easier. Labour is getting hip to this, so we need integrated reforms'. Is it so hard for an economist so say that social concerns need to be addressed, or am I not being charitable enough in my interpretation?

Fire away...