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Wage Inflation and the Distribution of Output Gaps in Europe: Insiders vs. Outsiders

  • M. Demertzis
  • A. Hughes Hallett

This paper examines whether Europe's monetary union framework of "ins" and "outs" reflects differences in market structures underpinned by relatively immobile labour. Such a situation could give rise to sufficient nominal convergence to satisfy the entry requirements to EMU, but little real convergence and hence a significant incentive for some to stay outside. Using models of wage leadership vs. locational competition, we examine the extent and strength of integration in labour market costs using a sample of data covering the 1980s and 1990s - i.e. for the run up to EMU. This exposes a conflict between real and nominal convergence which is ultimately incompatible with further integration. The empirical evidence suggests that wage bargainers now appear to focus more on their own domestic market conditions. That may deliver a better economic performance, but little extra integration.

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Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 631.

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Date of creation: 2000
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Handle: RePEc:dnb:wormem:631
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. Hallett, A.J. Hughes, 2000. "Aggregate Phillips Curves Are Not Always Vertical: Heterogeneity And Mismatch In Multiregion Or Multisector Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 534-546, December.
  2. Artis, Michael J & Ormerod, Paul, 1991. "Is There an `EMS' Effect in European Labour Markets?," CEPR Discussion Papers 598, C.E.P.R. Discussion Papers.
  3. Demertzis, Maria & Hallett, Andrew Hughes, 1998. "Asymmetric transmission mechanisms and the rise in European unemployment: A case of structural differences or of policy failures?," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 869-886, June.
  4. Hughes Hallett, A & Ma, Y & Melitz, J, 1995. "Unification and the Policy Predicament in Gemany," Papers 01, American Institute for Contemporary German Studies-.
  5. Michael Artis & Dilip Nachane, 1990. "Wages and prices in Europe: A test of the German leadership thesis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 126(1), pages 59-77, March.
  6. Edward H. Gardner & William R. M. Perraudin, 1993. "Asymmetry in the ERM: A Case Study of French and German Interest Rates Before and After German Unification," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 427-450, June.
  7. Hughes Hallett, Andrew & Ma, Yue, 1992. "East Germany, West Germany, and their Mezzogiorno Problem: An Empirical Investigation," CEPR Discussion Papers 623, C.E.P.R. Discussion Papers.
  8. Brechling, Frank, 1973. "Wage Inflation and the Structure of Regional Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 355-79, Part II F.
  9. repec:cup:cbooks:9780521483308 is not listed on IDEAS
  10. repec:cup:macdyn:v:4:y:2000:i:4:p:534-46 is not listed on IDEAS
  11. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
  12. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  13. Bhaskar, V, 1990. "Wage Relativities and the Natural Range of Unemployment," Economic Journal, Royal Economic Society, vol. 100(400), pages 60-66, Supplemen.
  14. Thirlwall, A P, 1970. "Regional Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 32(1), pages 19-32, February.
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