In addition to the immediate lost output, these costs may include loss of skills, lower productivity and wages and a permanent decrease in potential output (or increase in the NAIRU) in the years to come. These costs are especially relevant in Europe, where countries are fighting with deteriorating public finances, competitiveness issues and aging.
A well-functioning labour market improves the efficiency of monetary policy transmission The functioning of the labour market also affects the economic environment in which monetary policy is conducted. A flexible and well functioning labour market improves the efficiency of monetary policy transmission, and provides an economic environment which facilitates price-stability oriented monetary policy of the ECB.