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How bad is Divergence in the Euro-Zone? Lessons from the United States of America and Germany

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Author Info
Sebastian Dullien () (Financial Times Deutschland)
Ulrich Fritsche () (Department for Economics and Politics, University of Hamburg, and DIW Berlin)

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Abstract

This paper compares relative unit labour cost developments in the countries of the euro-area since the beginning of the European Monetary Union (EMU) both with historical developments and with intra-regional unit labour cost developments in the United States of America and Germany. To this end, unit labour cost indices for the US states and census regions from 1977 to 1997 as well as for the German Länder from 1970 to 2004 have been constructed. Against this benchmark, it is found that unit labour cost increases since 1999 in Portugal and to a lesser extent in Spain and Greece can be judged as excessive, pointing at labour market rigidities which might impair smooth working of EMU in the future.

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File URL: http://www.wiso.uni-hamburg.de/hepdoc/macppr_5_2006.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200605.

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Length: 34 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:hep:macppr:200605

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Web page: http://www.wiso.uni-hamburg.de/dwp
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For technical questions regarding this item, or to correct its listing, contact: (Ulrich Fritsche).

Related research
Keywords: Unit labor costs; divergence; convergence; Euro-zone; inflation;

Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
N2 - Economic History - - Financial Markets and Institutions

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References listed on IDEAS
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  1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  2. Janet L. Yellen, 2004. "Stabilization policy: a reconsideration," Speech, Federal Reserve Bank of San Francisco, issue Jul 1. [Downloadable!]
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  3. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May. [Downloadable!]
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  4. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS. [Downloadable!]
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  5. Robert E. Lucas, 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March. [Downloadable!]
  6. Bernd Hayo, 2006. "Is European Monetary Policy Appropriate for the EMU Member Countries? A Counterfactual Analysis," Marburg Working Papers on Economics 200610, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
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