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Future EMU Membership and Wage Flexibility in Selected EU Candidate Countries

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Author Info

  • Artur Radziwill
  • Mateusz Walewski

Abstract

This paper attempts to evaluate wage rigidity related to risks of increased size and volatility of unemployment after the candidate countries enter the EMU. Such evaluation is done through the study of past labour market adjustment mechanisms and, in particular, the role played by the exchange rate movements and independent monetary policy. The paper examines some institutional and structural characteristics of candidate countries labour markets that could influence the wage elasticity. The analysis indicates that generally nominal wages are not flexible in candidate countries. Inflationary surprises and nominal exchange rate movements have an effect on the adjustment, especially during the Russian crisis. On the other hand fast productivity growth creates the environment in which unit labour can adjust to unfavourable labour market outcomes through moderation of real wage dynamics despite nominal stickiness. The paper indicates possible fields of further in-depth research in this area.

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Bibliographic Info

Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0265.

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Length: 51 Pages
Date of creation: 2003
Date of revision:
Handle: RePEc:sec:cnstan:0265

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Related research

Keywords: labour market; unemployment; European Monetary Union; EU enlargement; EMU enlargement; wage flexibility;

References

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  1. von Hagen, Jurgen & Neumann, Manfred J M, 1994. "Real Exchange Rates within and between Currency Areas: How Far Away Is EMU?," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 236-44, May.
  2. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  3. Krugman, Paul & Venables, Anthony J., 1995. "Globalization and the Inequality of Nations," Working Paper Series 430, Research Institute of Industrial Economics.
  4. Jan Fidrmuc, 2002. "Migration and regional adjustment to asymmetric shocks in transition economies," CPB Discussion Paper 7, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Robert J. Gordon, 1996. "Macroeconomic Policy in the Presence of Structural Maladjustment," NBER Working Papers 5739, National Bureau of Economic Research, Inc.
  6. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  7. Jimeno, Juan F. & Vinals, Jose, 1998. "The impact of EMU on European unemployment," Working Papers 34, Oesterreichische Nationalbank (Austrian Central Bank).
  8. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  9. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Christiane Krieger-Boden & Dirk Dohse & Rüdiger Soltwedel, 1999. "EMU Challenges European Labor Markets," IMF Working Papers 99/131, International Monetary Fund.
  11. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  12. Vinals, Jose, 1996. "European monetary integration: A narrow or a wide EMU?," European Economic Review, Elsevier, vol. 40(3-5), pages 1103-1109, April.
  13. Anne C. Sibert & Alan Sutherland, . "Monetary Regimes and Labour Market Reform," Discussion Papers 97/14, Department of Economics, University of York.
  14. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
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Citations

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Cited by:
  1. Ian Babetskii, 2006. "Aggregate Wage Flexibility in Selected New EU Member States," Working Papers 2006/1, Czech National Bank, Research Department.
  2. Marek Gora & Artur Radziwill & Agnieszka Sowa & Mateusz Walewski, 2006. "Tax Wedge and Skills: Case of Poland in International Perspective," CASE Network Reports 0064, CASE-Center for Social and Economic Research.
  3. Van Poeck Andrè & Veiner Maret & Plasmans Joseph, 2007. "Wage flexibility in the new European Union members: How different form the “old” members?," wp.comunite 0006, Department of Communication, University of Teramo.

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