This paper studies the interaction between time inconsistency problems in labor market
policy and monetary policy. When both policies are discretionary, there is a positive
inflation bias, whereas the bias in labor market programs may be either positive
or negative. A commitment of labor market programs to zero increases inflation, as
compared to the case when both labor market policy and monetary policy are discretionary.
Delegation of labor market policy to a liberal labor market board may improve the
discretionary outcome, even if labor market programs crowd out regular employment.
A conservative central bank always reduces the social loss, even when monetary policy
interacts with labor market policy.