Why could Northern labor market flexibility save the eurozone?
AbstractWe consider a heterogeneous labor market in a two-country monetary union. The domestic economy is characterized by a dual labor market with formal and informal sectors as observed in most Southern EMU economies. Among formal workers, wage-levels result from efficiency considerations. In the foreign economy, with reference to Northern EMU economies, we assume another type of wage rigidity explained by the presence of unions. More precisely, only wages are bargained between firms and employees as in the right-to-manage model. These rigidities lead to inefficient allocations of workers in each country: a misallocation of workers among sectors in the domestic country and unemployment in the foreign one. In this context, the labor market flexibilization may appear as a relevant option for improving the situation of activity and employment in the monetary union. This is the reason why we investigate the overall effects of a decrease in trade union bargaining power in the foreign (Northern) economy. We show that, at the new equilibrium, a lower bargaining power in the foreign economy leads to a decrease in all prices and the effects are positive overall. In the foreign economy, the equilibrium level of production is higher, unemployment decreases and wages are lower. In the domestic one, the production also increases, the labor market benefits from a better allocation of workers between formal and informal sectors, and all wages are higher.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France) in its series Working Papers of LaRGE Research Center with number 2013-08.
Date of creation: 2013
Date of revision:
Contact details of provider:
Postal: 61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large/
More information through EDIRC
efficiency wage; dualism; EMU; trade unions; bargaining.;
Other versions of this item:
- Amélie Barbier-Gauchard & Francesco De Palma & Giuseppe Diana, 2013. "Why could Northern labor market flexibility save the eurozone ?," Working Papers of BETA 2013-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-EEC-2013-08-05 (European Economics)
- NEP-IUE-2013-08-05 (Informal & Underground Economics)
- NEP-LAB-2013-08-05 (Labour Economics)
- NEP-MAC-2013-08-05 (Macroeconomics)
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.:
- Zenou,Yves, 2009.
"Urban Labor Economics,"
Cambridge University Press, number 9780521875387, December.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780198284345.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
- Burda, Michael C. & Hunt, Jennifer, 2011.
"What Explains the German Labor Market Miracle in the Great Recession?,"
IZA Discussion Papers
5800, Institute for the Study of Labor (IZA).
- Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 273-335.
- Burda, Michael C & Hunt, Jennifer, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," CEPR Discussion Papers 8520, C.E.P.R. Discussion Papers.
- Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," NBER Working Papers 17187, National Bureau of Economic Research, Inc.
- Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," SFB 649 Discussion Papers SFB649DP2011-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Hazans, Mihails, 2011.
"Informal workers across Europe : evidence from 30 European countries,"
Policy Research Working Paper Series
5912, The World Bank.
- Hazans, Mihails, 2011. "Informal Workers across Europe: Evidence from 30 Countries," IZA Discussion Papers 5871, Institute for the Study of Labor (IZA).
- Philippe Askenazy & Christine Erhel, 2012. "The French Labour Market and the (Not So) Great Recession," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 08-13, 08.
- Bispinck, Reinhard & Dribbusch, Heiner & Schulten, Thorsten, 2010. "German collective bargaining in a European perspective: Continuous erosion or re-stabilisation of multi-employer agreements?," WSI Discussion Papers 171, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
- Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Schneider, Friedrich & Buehn, Andreas & Montenegro, Claudio E., 2010.
"Shadow economies all over the world : new estimates for 162 countries from 1999 to 2007,"
Policy Research Working Paper Series
5356, The World Bank.
- Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2010. "Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2007," Working Papers wp322, University of Chile, Department of Economics.
- Samuel Bentolila & Juan J. Dolado & Juan F. Jimeno, 2012. "The New New Labour Market Reform in Spain: Objectives, Instruments, and Shortcomings," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 03-07, 08.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski).
If references are entirely missing, you can add them using this form.