Wage Inflation and the Distribution of Output Gaps in Europe: Insiders vs. Outsiders
AbstractThis paper examines whether Europe's monetary union framework of "ins" and "outs" reflects differences in market structures underpinned by relatively immobile labour. Such a situation could give rise to sufficient nominal convergence to satisfy the entry requirements to EMU, but little real convergence and hence a significant incentive for some to stay outside. Using models of wage leadership vs. locational competition, we examine the extent and strength of integration in labour market costs using a sample of data covering the 1980s and 1990s - i.e. for the run up to EMU. This exposes a conflict between real and nominal convergence which is ultimately incompatible with further integration. The empirical evidence suggests that wage bargainers now appear to focus more on their own domestic market conditions. That may deliver a better economic performance, but little extra integration.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 631.
Date of creation: 2000
Date of revision:
EMU; Unemployment; real vs nominal convergence; locational competition;
Other versions of this item:
- M. Demertzis & A.J. Huges Hallett, 2001. "Wage Inflation and the Distribution of Output Gaps in Europe: Insidersvs. Outsiders," DNB Staff Reports (discontinued) 59, Netherlands Central Bank.
- F15 - International Economics - - Trade - - - Economic Integration
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
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