IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_3453.html
   My bibliography  Save this paper

Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour

Author

Listed:
  • Heiner Mikosch
  • Jan-Egbert Sturm

Abstract

By using a model of trade union behaviour Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. Following Grüner’s model, monetary centralization lets the central bank react less flexibly to national business cycle movements. This increases the amplitude of national business cycles which, in turn, leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.

Suggested Citation

  • Heiner Mikosch & Jan-Egbert Sturm, 2011. "Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour," CESifo Working Paper Series 3453, CESifo.
    • Handle: RePEc:ces:ceswps:_3453
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3453.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    2. Holden, Steinar, 2005. "Monetary regimes and the co-ordination of wage setting," European Economic Review, Elsevier, vol. 49(4), pages 833-843, May.
    3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    4. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366, Elsevier.
    5. Danthine, Jean-Pierre & Hunt, Jennifer, 1994. "Wage Bargaining Structure, Employment and Economic Integration," Economic Journal, Royal Economic Society, vol. 104(424), pages 528-541, May.
    6. Mongelli, Francesco Paolo & Vega, Juan Luis, 2006. "What effects is EMU having on the euro area and its member countries? An overview," Working Paper Series 599, European Central Bank.
    7. 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.
    8. Jensen, Henrik, 1993. "Uncertainty in interdependent economies with monopoly unions," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 1-24.
    9. Belke, Ansgar & Gros, Daniel, 2009. "Is a unified macroeconomic policy necessarily better for a common currency area?," European Journal of Political Economy, Elsevier, vol. 25(1), pages 98-101, March.
    10. Frey, Rainer, 2009. "The design of an asymmetric currency union with shock persistence and spillovers: Short-term versus medium-term," European Journal of Political Economy, Elsevier, vol. 25(1), pages 85-97, March.
    11. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 603-641, September.
    12. Elżbieta Bednarek-Sekunda & Richard Jong-A-Pin & Jakob de Haan, 2010. "The European Economic and Monetary Union and Labour Market Reform," European Union Politics, , vol. 11(1), pages 3-27, March.
    13. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    14. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    15. Adam S. Posen & Daniel Popov Gould, 2007. "Has EMU Had Any Impact on the Degree of Wage Restraint?," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 7, pages 146-178, Palgrave Macmillan.
    16. Romain Duval & Jørgen Elmeskov, 2005. "The Effects of EMU on Structural Reforms in Labour and Product Markets," OECD Economics Department Working Papers 438, OECD Publishing.
    17. Grüner, Hans Peter, 2010. "Why EMU is not a failure," European Journal of Political Economy, Elsevier, vol. 26(1), pages 1-11, March.
    18. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    19. Jan-Egbert Sturm & Timo Wollmershäuser, 2008. "The Stress of Having a Single Monetary Policy in Europe," KOF Working papers 08-190, KOF Swiss Economic Institute, ETH Zurich.
    20. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    21. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    22. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    23. Polterovich, Victor & Popov, Vladimir, 2006. "Эволюционная Теория Экономической Политики: Часть I: Опыт Быстрого Развития [An Evolutionary Theory of Economic Policy: Part I: The Experience of Fast Development]," MPRA Paper 22168, University Library of Munich, Germany.
    24. Ashenfelter, Orley & Card, David, 1985. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 648-660, November.
    25. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
    26. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
    27. Hansen, Christian B., 2007. "Generalized least squares inference in panel and multilevel models with serial correlation and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 670-694, October.
    28. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    29. David Soskice & Torben Iversen, 2000. "The Nonneutrality of Monetary Policy with Large Price or Wage Setters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 265-284.
    30. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
    31. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
    32. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 110-124, Autumn.
    33. Calmfors, Lars, 2001. "Unemployment, Labor Market Reform, and Monetary Union," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 265-289, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hope, David, 2016. "Estimating the effect of the EMU on current account balances: A synthetic control approach," European Journal of Political Economy, Elsevier, vol. 44(C), pages 20-40.
    2. Thushyanthan Baskaran & Zohal Hessami, 2017. "Monetary integration, soft budget constraints, and the EMU sovereign debt crises," Economics and Politics, Wiley Blackwell, vol. 29(3), pages 252-275, November.
    3. Chadi, Adrian, 2015. "Concerns about the Euro and happiness in Germany during times of crisis," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 126-146.
    4. Bertola, Giuseppe, 2019. "Wedges: Distribution, distortions, and market integration," European Journal of Political Economy, Elsevier, vol. 59(C), pages 21-32.
    5. Egger, Peter H. & Radulescu, Doina M., 2012. "Family policy and the number of children: Evidence from a natural experiment," European Journal of Political Economy, Elsevier, vol. 28(4), pages 524-539.
    6. Ioannou, Demosthenes & Stracca, Livio, 2014. "Have the euro area and EU governance worked? Just the facts," European Journal of Political Economy, Elsevier, vol. 34(C), pages 1-17.

    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. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    2. Sergio A. Contreras & Andrew J. Greenlee, 2021. "Evaluating the effectiveness of ChileCompra's Entrepreneurship Centers policy," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(4), pages 1262-1282, August.
    3. Christian Volpe Martincus & Jerónimo Carballo, 2010. "Is Export Promotion Effective in Developing Countries? Firm-Level Evidence on the Intensive and Extensive Margins of Exports," IDB Publications (Working Papers) 36763, Inter-American Development Bank.
    4. Lars Calmfors, 2001. "Wages and Wage-Bargaining Institutions in the EMU – A Survey of the Issues," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 325-351, December.
    5. Lechner, Michael, 2011. "The Estimation of Causal Effects by Difference-in-Difference Methods," Foundations and Trends(R) in Econometrics, now publishers, vol. 4(3), pages 165-224, November.
    6. Jones A.M & Rice N, 2009. "Econometric Evaluation of Health Policies," Health, Econometrics and Data Group (HEDG) Working Papers 09/09, HEDG, c/o Department of Economics, University of York.
    7. Grüner, Hans Peter, 2010. "Why EMU is not a failure," European Journal of Political Economy, Elsevier, vol. 26(1), pages 1-11, March.
    8. 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.
    9. Lin, Boqiang & Li, Xuehui, 2011. "The effect of carbon tax on per capita CO2 emissions," Energy Policy, Elsevier, vol. 39(9), pages 5137-5146, September.
    10. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    11. Susan Athey & Guido W. Imbens, 2006. "Identification and Inference in Nonlinear Difference-in-Differences Models," Econometrica, Econometric Society, vol. 74(2), pages 431-497, March.
    12. Rösner, Anja & Haucap, Justus & Heimeshoff, Ulrich, 2020. "The impact of consumer protection in the digital age: Evidence from the European Union," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    13. Belman, Dale. & Wolfson, Paul J., 2016. "What does the minimum wage do in developing countries? : A review of studies and methodologies," ILO Working Papers 994893283402676, International Labour Organization.
    14. Dmitry Arkhangelsky & Guido Imbens, 2023. "Causal Models for Longitudinal and Panel Data: A Survey," Papers 2311.15458, arXiv.org, revised Mar 2024.
    15. Moïse Sidiropoulos & Blandine Zimmer, 2009. "Monetary Union Enlargement, Fiscal Policy, and Strategic Wage Setting," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 631-649, August.
    16. Christian Volpe Martincus, 2010. "Odyssey in International Markets: An Assessment of the Effectiveness of Export Promotion in Latin America and the Caribbean," IDB Publications (Books), Inter-American Development Bank, number 16458, February.
    17. Volpe Martincus, Christian & Carballo, Jerónimo, 2008. "Is export promotion effective in developing countries? Firm-level evidence on the intensive and the extensive margins of exports," Journal of International Economics, Elsevier, vol. 76(1), pages 89-106, September.
    18. Li, Xia & Gan, Christopher & Hu, Baiding, 2011. "The welfare impact of microcredit on rural households in China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 404-411, August.
    19. Aistov, Andrey & Aleksandrova, Ekaterina, 2016. "Time-distributed difference-in-differences approach: The case of wage returns to training," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 43, pages 5-28.
    20. Committee, Nobel Prize, 2021. "Answering causal questions using observational data," Nobel Prize in Economics documents 2021-2, Nobel Prize Committee.

    More about this item

    Keywords

    common currency areas; EMU; Phillips curve; unemployment; wages;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    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:ces:ceswps:_3453. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.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.