We present a new macro tool for monitoring and forecasting labour market developments across the six largest euro area countries. The model is primarly empirical but relies on theoretical underpinning in the derivation of the trends. This paper presents a new macro tool for monitoring and forecasting labour market developments across the six largest euro area countries, namely Germany, France, Italy, Spain, the Netherlands and Belgium. The model consists of a set of labour market equations (labour force, labour demand, wage curve, production function, relative prices, hours worked) which are jointly estimated, thereby providing a consistent pull of estimates for labour market quantities and prices. In particular, the model is able to distinguish between intensive (hours worked per person) and the extensive (persons employed) margins. The forecasting properties of the estimated model are satisfactory as they generally improve on rst and second order VAR models and random walk processes. The paper also shows that labour market adjustments dier substantially across euro area countries, as it emerges from the contributions of the longterm drivers and short-term shocks to key labour market developments. A small labour market model for the six largest euro area countries (Germany, France, Italy, Spain, the Netherlands, Belgium) is estimated in a state space framework. The model entails, in the long run, four driving forces: a trend labour force component, a trend labour productivity component, a long-run in ation rate and a trend hours worked component. The short run dynamics is governed by a VAR model including six shocks. The state-space framework is convenient for the decomposition of endogenous variables in trends and cycles, for shock decomposition, for incorporating external judgements, and for running conditional projections. The forecast performance of the model is rather satisfactory. The model is used to carry out a policy experiment with the objective of investigating whether euro area countries dier in the labour market adjustment to a reduction in labour costs. Results suggest that, following the 2008-2009 recession, moderate wage growth would signicantly help delivering a more job-intense recovery. see full paper attached