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European Wage Coordination: Nightmare or dream to come true?

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Abstract

This paper analyses recent trends in wage bargaining institutions in Europe to explain the gradual deterioration in the bargaining position of trade unions. It appears that the integration of European economies is an important factor. This raises the question whether trade unions will respond by coordinating their wages internationally. Our conjecture is that the opportunities for wage coordination are not very strong. This is because of the numerous obstacles associated with heterogenous structures in wage setting in the EU. Softer coordination, e.g. in the form of information exchange or agreements on common rules in wage setting, is more likely to occur and has already been introduced in some cases. If stronger forms of international wage coordination would take off, perhaps in the longer term, this would strengthen the bargaining power of trade unions relative to firms. The implications for equilibrium unemployment are ambiguous. On the one hand, higher bargaining power raises wages and thereby unemployment. On the other hand, it reduces unemployment by better incorporating the response of the ECB to wage demands. Another consequence of stronger forms of international wage coordination may be that the absorption of asymmetric shocks in the EMU gets more problematic. In that case, wage coordination may turn into a nightmare as it hampers a crucial stabilisation mechanism in the EMU.

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Bibliographic Info

Paper provided by European Network of Economic Policy Research Institutes in its series Economics Working Papers with number 020.

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Length: 33 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:epr:enepwp:020

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Related research

Keywords: youth unemployment; labour supply; labour market institutions;

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Cited by:
  1. Peeters, Marga & Den Reijer, Ard, 2011. "On wage formation, wage flexibility and wage coordination : A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States," MPRA Paper 31102, University Library of Munich, Germany.
  2. Breiding, Torsten, 2006. "Die Arbeitslosenversicherung in Deutschland – Beitrag zur Bekämpfung oder Ursache von Arbeitslosigkeit
    [The unemployment insurance in Germany - does it cause or does it help to overcome unemploy
    ," MPRA Paper 20999, University Library of Munich, Germany.
  3. W.Jos Jansen & Ad C.J.Stokman, 2003. "The Importance of Multinational Companies for Global Economic Linkages," DNB Staff Reports (discontinued) 99, Netherlands Central Bank.
  4. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept – opportunities and obstacles in the EMU," Macroeconomics 0412007, EconWPA.

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