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Has EMU Had Any Impact on the Degree of Wage Restraint?

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Author Info
Adam S. Posen () (Institute for International Economics)
Daniel Popov Gould (Institute for International Economics)

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Abstract

This working paper investigates the European Monetary Unification’s (EMU) effect on wage restraint—the degree to which wage increases do or do not exceed productivity growth. We find in cross-sectional investigations that wage restraint either is unchanged or has increased following EMU in the vast majority of countries. This finding contradicts the predictions of a widely cited family of models of coordination of labor market bargaining. In particular, one would have expected Germany to display the greatest decline in wage restraint post-EMU under these models, but in our time-series analysis we find no indication of such a decline. The overall shift toward greater wage restraint is consistent with the models that emphasize the gains from monetary credibility. The time-series evidence on Italy, which shows a significant increase in wage restraint after eurozone entry, also supports this view. That said, the increase in wage restraint in the eurozone is matched by that associated with the increase in credibility seen in the United Kingdom and Sweden after their adoption of inflation targeting post-1992.

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Paper provided by Peterson Institute for International Economics in its series Peterson Institute Working Paper Series with number WP06-06.

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Date of creation: Aug 2006
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Handle: RePEc:iie:wpaper:wp06-6

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Related research
Keywords: EMU; wage bargaining; monetary credibility; productivity;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
  4. John Driffill, 2006. "The Centralization of Wage Bargaining Revisited: What Have we Learnt?," Journal of Common Market Studies, Blackwell Publishing, vol. 44, pages 731-756, November. [Downloadable!] (restricted)
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    Other versions:
  8. Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August. [Downloadable!] (restricted)
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  17. Posen, Adam S, 1998. "Do Better Institutions Make Better Policy? Review," International Finance, Blackwell Publishing, vol. 1(1), pages 173-205, October. [Downloadable!] (restricted)
  18. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-24, Autumn.
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  21. David Soskice & Torben Iversen, 2000. "The Nonneutrality Of Monetary Policy With Large Price Or Wage Setters," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 265-284, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marcelo Sánchez, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 927, European Central Bank. [Downloadable!]
  2. Ulf Söderström, 2008. "Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model," NBER Working Papers 14519, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Söderström, Ulf, 2008. "Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model," Working Paper Series 227, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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