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Labour Markets and Monetary Union: A Strategic Analysis

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  • Cukierman, Alex
  • Lippi, Francesco

Abstract

This paper analyzes the macroeconomic consequences of the establishment of a monetary union in the presence of unionized labour markets. It is shown that the effects of the formation of a monetary union depend on several labour market features, such as the degree of centralization of wage bargaining, labour unions' inflation aversion and the degree of substitutability between the labour of different unions. In particular, the switch from national monetary policies to a unified monetary policy usually affects both inflation and unemployment, even when all structural parameters of the economy and of unions' and policy makers' preferences remain the same. The benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labor uur unions more aggressive, increasing unemployment. Qualifications to this result are provided and their robustness is investigated under alternative structural assumptions, like cross-country asymmetries, (pre-union) ERM membership and wage leadership.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2236.

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Date of creation: Sep 1999
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Handle: RePEc:cpr:ceprdp:2236

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Keywords: Inflation; Labour Unions; Monetary Union; Strategic Monetary Policy; Unemployment;

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  1. repec:wop:humbsf:1999-41 is not listed on IDEAS
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  4. Francesco Lippi, 2003. "Strategic Monetary Policy with Non-Atomistic Wage Setters," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 909-919, October.
  5. Lippi, Francesco, 1999. "Strategic Monetary Policy with Non-Atomistic Wage Setters: A Case for Non-Neutrality," CEPR Discussion Papers 2218, C.E.P.R. Discussion Papers.
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  14. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Some Evidence," Discussion Paper 1998-116, Tilburg University, Center for Economic Research.
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  16. Calmfore, L., 1993. "Centralization of Wage Bargaining and Macroeconomic Performance - A Survey," Papers 536, Stockholm - International Economic Studies.
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  19. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
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