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Labour Market Institutions and Inflation Differentials in the EU

Author

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  • D'Adamo, Gaetano

    (Universidad de Valencia)

  • Rovelli, Riccardo

    (University of Bologna)

Abstract

Adopting a simple Phillips curve framework, we show that different labour market institutions across EU countries are associated with significant differences in the response of inflation to unemployment and exchange rate shocks. More wage coordination and higher union density flatten the Phillips curve and increase the inflation response to the real exchange rate, i.e. the exchange rate pass-through. In addition, using a new approach to the classification of goods and services as "traded" or "non-traded", we show that both these institutional effects are significantly stronger for the more exposed (traded) sector.

Suggested Citation

  • D'Adamo, Gaetano & Rovelli, Riccardo, 2015. "Labour Market Institutions and Inflation Differentials in the EU," IZA Discussion Papers 9389, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9389
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    References listed on IDEAS

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    Cited by:

    1. Riccardo Rovelli, 2016. "Wage coordination in new and old EU member states," IZA World of Labor, Institute of Labor Economics (IZA), pages 222-222, January.
    2. Rafael Martin M. Consing & Angelo Jose B. Lumba & Julian Thomas B. Alvarez, 2018. "Linking Inflation Differential Across Regions to Unemployment in the Philippines," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 6(3), pages 356-373, September.
    3. Francesco De Palma & KSamuel Ligonnière & Jamel Saadaoui & Yann Thommen, 2022. "The Role of Wage Bargaining Institutions in the Phillips curve Flattening," Working Papers REM 2022/0236, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. Jean-Louis Combes & Pierre Lesuisse, 2022. "Inflation and unemployment, new insights during the EMU accession," International Economics, CEPII research center, issue 172, pages 124-142.

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    More about this item

    Keywords

    sectoral inflation differentials; inflation determinants; labour market institutions; EU 27;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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