Lauer, Charlotte () (Department of Labour Economics, Human Resources and Social Policy/ Centre for European Economic Research (ZEW))
Abstract
This paper evaluates the possible consequences of the forthcoming European and Monetary Union on wage behavior. It will be shown that EMU does not influence wage policy directly, but rather indirectly through its implications on other areas of economic policy, predominantly on monetary policy. Consequently, EMU will put increasing pressure on using wage policy as a flexible adjustment variable, since other adjustment mechanisms shall cease to exist. Six European countries were analyzed empirically, which showed that in the past, southern European countries conducted a much more expansive wage policy than northern European countries. However, this competitive disadvantage of the southern countries was more than compensated by exchange rate developments. What will happen when EMU has come into effect? Either fewer devaluation possibilities within EMU will lead to a shift in competitive positions in favor of the northern countries, or a change in wage behavior will be observed. The descriptive analysis shows that, on the eve of EMU, wage policy has become more moderate. This trend could be accelerated by the arrival of EMU. The econometric analysis provides an argument for this: the stability of exchange rates have been proven to have a dampening effect on wage increases in the past, particularly in southern European countries. Whether the extent of these effects will be sufficient to prevent a shift in relative competitive positions, however, remains to be seen.
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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
36.
Find related papers by JEL classification: J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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.:
Stirböck, Claudia & Heinemann, Friedrich, 1999.
"Capital Mobility within EMU,"
ZEW Discussion Papers
99-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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