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International Spill-over Effects of Labour Market Rigidities

Author

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  • Spange, Morten

    (Department of Economics Aarhus, Denmark)

Abstract

This paper analyses the implications of real wage rigidities in a stochastic two-country general equilibrium model. It is shown how real wage rigidities in one country affect welfare in both countries. Assuming that the choice of whether or not to adopt flexible wages is in the hands of labour unions within each country, it is found that wages will be flexible in either no, one or both countries. Hence, even in this symmetric model flexible wages in one country and rigid wages in the other may be an equilibrium. Since there are international spillover effects of the choice of wage setting regime, the utilitarian solution is also considered. Interestingly, this does not necessarily entail more real wage flexibility than in the Nash equilibrium.

Suggested Citation

  • Spange, Morten, "undated". "International Spill-over Effects of Labour Market Rigidities," Economics Working Papers 2003-12, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2003-12
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    File URL: https://repec.econ.au.dk/repec/afn/wp/03/wp03_12.pdf
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    References listed on IDEAS

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    9. Andersen, Torben M. & Spange, Morten, 2006. "International interdependencies in fiscal stabilization policies," European Economic Review, Elsevier, vol. 50(5), pages 1169-1195, July.
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    Cited by:

    1. Andersen, Torben M., 2008. "Heterogenous wage formation under a common monetary policy," Economic Modelling, Elsevier, vol. 25(4), pages 740-771, July.
    2. Morten Spange, 2007. "Do Structural Asymmetries Increase The Gains From International Fiscal Policy Coordination?," Manchester School, University of Manchester, vol. 75(1), pages 131-150, January.
    3. Andersen, Torben M. & Spange, Morten, 2006. "International interdependencies in fiscal stabilization policies," European Economic Review, Elsevier, vol. 50(5), pages 1169-1195, July.

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    More about this item

    Keywords

    Real Wage Rigidity; Labour Market Reforms; Spill-over Effects; Open Economy;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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