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Macroeconomic Policy, Wage Setting, and Employment--What Difference Does the EMU Make?

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  • Calmfors, Lars

Abstract

The likely impact of the EMU on the variability and level of employment is analysed. The major conclusions are as follows. (i) Although an inflation-target regime will constrain monetary policy of a non-participant in the EMU, it still leaves considerable scope for exchange-rate changes in the case of country-specific demand shocks, provided that there is some nominal price and wage flexibility. (ii) Variations in payroll taxes can be used as a substitute for exchange-rate changes in the EMU, but it will be an imperfect substitute. (iii) Money-wage flexibility is likely to be larger inside than outside the EMU, but probably not by much. (iv) There are various mechanisms through which the EMU may affect the incentives for labour-market reform to reduce equilibrium unemployment, but the net impact is highly uncertain. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting, and Employment--What Difference Does the EMU Make?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 125-151, Autumn.
    • Handle: RePEc:oup:oxford:v:14:y:1998:i:3:p:125-51
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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