IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/39154.html
   My bibliography  Save this paper

Influence of institutional factors and wage-setting mechanism in a dual labour market with currency union: Northern Cyprus

Author

Listed:
  • Kayam, Saime S.

Abstract

In this paper, I consider two heterogeneous economies that engage in a currency union. The small economy adopts the currency of the large and is highly dependent on its wealthier partner for trade. The effects of a currency union, deficit financing and institutional restraints on inflation are analyzed in a dual economy with different wage-setting mechanisms. In the model, Northern Cyprus is the small economy and Turkey, being the only country that acknowledges it as an independent state is its larger partner. Features of the labour markets determine the wages. We make a conjecture that wage determination in Northern Cyprus (NC) is conducted with reference to centralized-bargaining and that decentralized bargaining sets the wages in Turkey (TR). Hence, the differences in wage-setting procedures cause a dual labour market. In order to incorporate monetary dependence into the analysis, we let the Turkish central bank to decide on the economic policy measures, in this case the inflation rate and unemployment. The institutional restraints such as economic sanctions increase the inflexibility in the NC and cause shocks to affect the economy more. In order to compensate for the losses that might be endured by the government in NC, TR finances the budget deficit of NC. Therefore, TR government needs to consider the burden of this financing issue.

Suggested Citation

  • Kayam, Saime S., 2011. "Influence of institutional factors and wage-setting mechanism in a dual labour market with currency union: Northern Cyprus," MPRA Paper 39154, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39154
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/39154/1/MPRA_paper_39154.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Harvey W. Armstrong & Robert Read, 1998. "Trade and Growth in Small States: The Impact of Global Trade Liberalisation," The World Economy, Wiley Blackwell, vol. 21(4), pages 563-585, June.
    2. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 409-436.
    3. Nelly Gregoriadis & Florina, Cristina Semenescu-Badarau & Patrick Villieu, 2006. "Monetary Policy and Inflation Divergences in a Heterogeneous Monetary Union," Post-Print halshs-00257817, HAL.
    4. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
    5. Gylfason, Thorvaldur & Lindbeck, Assar, 1994. "The Interaction of Monetary Policy and Wages," Public Choice, Springer, vol. 79(1-2), pages 33-46, April.
    6. Holden, Steinar, 2005. "Monetary regimes and the co-ordination of wage setting," European Economic Review, Elsevier, vol. 49(4), pages 833-843, May.
    7. Duarte, Margarida & Wolman, Alexander L., 2008. "Fiscal policy and regional inflation in a currency union," Journal of International Economics, Elsevier, vol. 74(2), pages 384-401, March.
    8. repec:lan:wpaper:898 is not listed on IDEAS
    9. Iversen, Torben, 1998. "Wage Bargaining, Hard Money and Economic Performance: Theory and Evidence for Organized Market Economies," British Journal of Political Science, Cambridge University Press, vol. 28(1), pages 31-61, January.
    10. Vousden,Neil, 1990. "The Economics of Trade Protection," Cambridge Books, Cambridge University Press, number 9780521346696.
    11. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
    12. Chipman, John S & Moore, James C, 1980. "Compensating Variation, Consumer's Surplus, and Welfare," American Economic Review, American Economic Association, vol. 70(5), pages 933-949, December.
    13. Hans Peter Grüner & Carsten Hefeker, 1999. "How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 33-47, March.
    14. Lars Calmfors, 2001. "Wages and Wage-Bargaining Institutions in the Emu : A Survey of the Issues," CESifo Working Paper Series 520, CESifo.
    15. Badarau-Semenescu, C. & Gregoriadis, N., 2009. "Monetary Policy and National Divergences in a Heterogeneous Monetary Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 408-434.
    16. Driffill, John & van der Ploeg, Frederick, 1993. "Monopoly Unions and the Liberalisation of International Trade," Economic Journal, Royal Economic Society, vol. 103(417), pages 379-385, March.
    17. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    18. Johansson,Per-Olov, 1991. "An Introduction to Modern Welfare Economics," Cambridge Books, Cambridge University Press, number 9780521356954.
    19. Huizinga, H.P., 1993. "International market integration and union wage bargaining," Other publications TiSEM 567712dd-8f03-40d8-8428-c, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alain Borghijs & Sjef Ederveen & Ruud de Mooij, 2003. "European wage coordination; nightmare or dream to come true? An economic analysis of wage bargaining institutions in the EU," CPB Discussion Paper 17.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Alain Borghijs & Sjef Ederveen & Ruud de Mooij, 2003. "European wage coordination; nightmare or dream to come true? An economic analysis of wage bargaining institutions in the EU," CPB Discussion Paper 17, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Carsten Hefeker, 2002. "Lohnpolitik und Geldpolitik in Euroland," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 354-367.
    4. Lilia Cavallari, 2001. "Macroeconomic Performance and Wage Bargaining in a Monetary Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 419-433, December.
    5. Calmfors, Lars, 2001. "Wages and wage-bargaining institutions in the EMU – a survey of the issues," Seminar Papers 690, Stockholm University, Institute for International Economic Studies.
    6. Blandine ZIMMER, 2005. "Coordination des négociations salariales en UEM : un rôle majeur pour la BCE," Working Papers of BETA 2005-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Cukierman, Alex & Lippi, Francesco, 2001. "Labour Markets and Monetary Union: A Strategic Analysis," Economic Journal, Royal Economic Society, vol. 111(473), pages 541-565, July.
    8. Jong-Wha Lee & Kwanho Shin, 2010. "Exchange Rate Regimes and Economic Linkages," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 1-23.
    9. Fischer, Christoph, 2016. "Determining global currency bloc equilibria: An empirical strategy based on estimates of anchor currency choice," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 214-238.
    10. Christian Rohe, 2016. "On shock symmetry in South America: New evidence from intra-Brazilian real exchange rates," CQE Working Papers 5316, Center for Quantitative Economics (CQE), University of Muenster.
    11. Kuteesa, Annette, 2012. "East African Regional Integration: Challenges in meeting the convergence criteria for monetary union," Research Series 148956, Economic Policy Research Centre (EPRC).
    12. Arellano, Cristina & Heathcote, Jonathan, 2010. "Dollarization and financial integration," Journal of Economic Theory, Elsevier, vol. 145(3), pages 944-973, May.
    13. Groll, Dominik & Monacelli, Tommaso, 2020. "The inherent benefit of monetary unions," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 63-79.
    14. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2011. "The Euro and Structural Reforms," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
    15. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
    16. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    17. Süppel, Ralph, 2003. "Comparing economic dynamics in the EU and CEE accession countries," Working Paper Series 267, European Central Bank.
    18. Mark Aguiar & Manuel Amador & Emmanuel Farhi & Gita Gopinath, 2015. "Coordination and Crisis in Monetary Unions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1727-1779.
    19. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).
    20. Richard Pomfret, 2017. "Currency Union and Disunion in Europe and the Former Soviet Union," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(4), pages 43-47, January.

    More about this item

    Keywords

    currency union; monetary policy; labour market institutions; politics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:39154. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.