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Europeanization or Globalization? Transnational Wage Bargaining and the Distribution of Activity in European Labor Markets

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  • Maria Demertzis
  • Andrew Hughes Hallett
  • Nicolien Schermer

Abstract

This paper investigates the impact of increasing 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 inflationary 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, thereby improving the tradeoff 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while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces.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 has led to 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

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 186.

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Date of creation: Nov 2008
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Handle: RePEc:dnb:dnbwpp:186

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Keywords: Phillips Curves; aggregation; locational competition; wage leadership.;

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  1. Hughes Hallett, Andrew & Ma, Yue & Mélitz, Jacques, 1994. "Unification and the Policy Predicament in Germany," CEPR Discussion Papers 956, C.E.P.R. Discussion Papers.
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  16. Hallett, A.J. Hughes, 2000. "Aggregate Phillips Curves Are Not Always Vertical: Heterogeneity And Mismatch In Multiregion Or Multisector Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 534-546, December.
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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, vol. 33(1), pages 73-87.

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