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Europeanization or globalization? Transnational wage bargaining and the distribution of activity in European labor markets

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  • Demertzis, Maria
  • Hughes Hallett, Andrew
  • Schermer, Nicolien

Abstract

This paper investigates the impact of globalization on labor markets, in terms of wage inflation and the distribution of activity across regions. Specifically, we study the effects of aggregation in the labor markets on the distribution of employment and inflation pressures, where there are differences in market structures and transmission mechanisms underpinned by relatively immobile labor. To demonstrate these ideas, we take the European experience as a "laboratory" to show what can be expected from globalization in the labor markets in practice. Using models of wage leadership vs. locational competition, we examine the extent and strength of aggregation effects on labor market costs using a sample of data from 1983 to 2007 which covers the period of the creation of the Euro. We find that the aggregation effect has decreased significantly since the start of EMU, improving the trade-off between inflation and unemployment. At the same time, while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces. This implies increased locational competition in terms of wage formation. We demonstrate this with the emerging role of the US as the benchmark for wage setting in Europe.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 20 (2009)
Issue (Month): 2 (August)
Pages: 177-192

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Handle: RePEc:eee:ecofin:v:20:y:2009:i:2:p:177-192

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Web page: http://www.elsevier.com/locate/inca/620163

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Keywords: Phillips curves Aggregation Locational competition Wage leadership;

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  1. Edward H. Gardner & William R. M. Perraudin, 1993. "Asymmetry in the ERM: A Case Study of French and German Interest Rates Before and After German Unification," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 427-450, June.
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Cited by:
  1. Athanasios Vamvakidis, 2009. "Regional Wage Differentiation and Wage Bargaining Systems in the European Union," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 33(1), pages 73-87.
  2. Kowalski, Tadeusz & Shachmurove, Yochanan, 2014. "The reaction of the U.S. and the European Monetary Union to recent global financial crises," Global Finance Journal, Elsevier, vol. 25(1), pages 27-47.

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