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Liberation of Prices : a Solution for Employment ? Eric Bleuze, Michel Gilles, Thierry Pujol The article analyzes first the consequences of the liberation of the prices of the services most affected by international competition, and then analyses the macroeconomic impact of that liberation using both a neokeynesian model and the OFCE quarterly model. The restoration of margins following the total liberation of prices in services improved the profitability of this sector, which for several years had been declining. But, taking into consideration the behaviour of consumption, it seems unlikely to induce producers to increase capacity and employment very much. An econometric estimate suggests an increase of 10 000 in the number of jobs in catering and car repairing in 1987 following the liberation of prices. In the short term the impact on the consumer price index is limited (0.3 to 0.5 of a percentage point in 1987) and the transfer is mainly from households to the service producers. Over the medium term, developments will depend on several factors. With widespread indexation, as in France, where salaries follow prices and companies' prices are indexed on costs, the initial advantage obtained by services is slowly disappearing, unless there should be a break in indexation or a continuing increase in the prices of services. In this case the inflation rate would definitely increase. On the assumption of an initial shock to prices in services and close indexation of salaries to production prices, the liberation of prices in services would be likely to exert a depressive effect, the more so if the exchange rate is fixed (26 000 jobs lost at the dawn of 1990). Greater flexibility in the exchange rate would moderate this depressive impact of the decrease in competitiveness, but with more inflation.