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Has EMU had any Impact on the Degree of Wage Restraint?

  • Adam Posen
  • Daniel Popov Gould

We find in cross-sectional investigations that wage restraint is either unchanged or increased following EMU in the vast majority of countries. This contradicts the predictions of a widely-cited family of models of labor market bargaining. In those, Germany would have been expected to display the greatest decline in wage restraint post-EMU, and we find no indication of such a decline. The time-series evidence on Italy shows a significant increase in wage restraint after eurozone entry. This pattern is consistent with the models that emphasise the gains from monetary credibility. The eurozone increase in wage restraint is matched by the increase seen in the UK and Sweden after adopting inflation targeting, another means to credibility.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1783.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1783
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