Who benefits and who loses when a common market for labour is extended to more countries? Explain your answer with reference to economic theory and to EU experience. Comment also on the future implications of the 2004 enlargement.

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Who benefits and who loses when a common market for labour is extended to more countries?

Explain your answer with reference to economic theory and to EU experience.  Comment also on the future implications of the 2004 enlargement.

Many people talk about the 'common market', by which they meant the European Economic Community in its early decades.  Ths is a group of geographically close European nations among which there is free trade and a common external tariff with free movement of capital, labour and enterprise as well as goods.  Under the Treaty of Rome (1957) the member states agreed not only to form a customs union but also to form a common market.  It had envisaged that there would be a fully free common market in the EEC within 12 years, but intra EEC economic activity evolved in a highly imperfect way with significant trade barriers remaining in many sectors.  Policy makers were fustrated for it was often difficult to put European market policy high on the agenda, and it was not untill the mid 1980s that the issue of the creation of the Single European Market became the central concern.  

On 1st May 2004, the European Union was enlarged to twenty-five member countries.  The ten additions include Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.  The 2004 enlargement will extend the common market for labour due to an increase in countries.  This will have a large impact on most of the member countries, whether a beneficial impact or negative impact is what I will discuss in this essay.

A larger common market will obviously increase the current advantages already experienced within the EU.  Economic theory suggests the 'comparative advantage principle' which means that one region or country specialises in the production of a certain good or service and trades with other regions which are speciaising where they have an advantage.  This only works however if, among other things, there is freedom of trade between the countries concerned.  There will be an increase in competition and therefore increased efficiency.  In the planing for thr Single European Market, The assumption was that a more competitive European internal economy would develop.  Oligopolistic national industries would be replaced by intgrated EU wide competitive industries.  With greater competition there will be greater price convergence so premium prices within the EU would be driven down by competition.  Remaining trade barriers to free trade meant there was still variations in price with in practise the effet of the common market on price convergence was somewhat lmited and therefore when EMU was being advocated in the late 1990s, its supporters were arguing that one of the many advantages of the single currency would be that it would at long last spell the end of price variations.

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With a common market there will be free movement of labour between countries.  Who benefits and who loses will depend on the country and their economic and employment situation.  Using economic theory  suppose country 1 ('Germany') has high levels of capital per worker, and country 2 ('Poland') has low capital per worker.  Therefore as a result of the higher level of capital per worker the output per worker (i.e. productivity) is higher in Germany.  At moment Polish workers cannot obtain work permits in Germany and so therefore consequently German workers are paid higher wages than Polish workers.  Now, if ...

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