for their numerous and insightful remarks on earlier drafts of this Report. The authors thank professor Michael J. Artis for his excellent assistance with the English language version of the Report. The Report was submitted for publishing in March 2004. Design: Oliwka s.c. Printed by:

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1 I thank Hermes Martinez for his valuable research assistance. The opinions expressed here reflect the Compared to the pace of structural reforms aimed at liberalizing product and capital markets, labor reforms have been scarce. In many instances, when they have occurred, they have increased the level of protection afforded to workers. However, many observers argue that without further labor market reforms aimed at liberalizing labor

The process of European Union Accession has provided a strong stimulus for various institutional changes in Turkey. The European Council decision taken at Helsinki (10-11 December 1999) was an important turning point in this process. The Accession Partnership, which followed the Helsinki summit, identified short and medium term priorities, intermediate objectives and conditions on which accession preparations must concentrate in the light of the political and economic criteria. One of the most important issues for Turkey regarding the adoption and implementation of the Community acquis is related with the labor market regulations and employment policies. The adoption of the Community acquis will certainly bring radical changes in the functio ning of the labor market in Turkey with vital consequences for firms, and workers, as well as the long-term performance of the economy. The aim of this study is to provide information for the use of these agents on the employment and labor market issues that are important during the EU accession process. Since the topic is rather broad, the current study has concentrated upon the possible effects of the adoption of the employment acquis regulating work and employment conditions, and issues like child labor,

This paper studies whether ‡exibility on the labor market contributes to output growth. Under the assumption that …rms and workers face imperfect capital markets, I show that labor market ‡exibility has three types of e¤ects. It …rst contributes to relax …rms credit constraints. Second it can prompt …rms to make more productive investments but the more likely so if capital market imperfections are low. Finally it positively in‡uences workers precautionary savings and thereby raises the volume of global savings. Based on these three e¤ect, the model brings two results. First the economy can exhibit multiple equilibria when capital market imperfections are large, the high ‡exibility equilibrium being always Pareto dominated. Second the model predicts that productivity growth should be positively associated with labor market ‡exibility for relatively low levels of capital market imperfections.