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Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions

  • Knell, Markus

    (Osterreichische Nationalbank)

The paper studies the determinants of unemployment in a two-countrymodel, where real wages are the outcome of the strategic interaction between various institutional players (firms, unions, central banks). We show that: (i) the results derived in the recent literature on this topic are not generally robust against the introduction of openness; (ii) the shape of the Calmfors-Driffill curve not only depends on a country's own centralization of wage bargaining (CWB) but rather on home and foreign characteristics; (iii) the model challenges the established belief that a shift to a monetary union (MU) will (negatively) affect unemployment in all member countries by fundamentally changing the nature of strategic interactions. Under certain assumptions our open-economy model suggests that the formation of a MU has no effect whatsoever on structural unemployment.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 124.

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Date of creation: 04 Jun 2003
Date of revision:
Handle: RePEc:ecj:ac2003:124
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  23. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2001. "Economic Performance and Stabilization Policy in a Monetary Union with Imperfect Labour and Goods Markets," CEPR Discussion Papers 2745, C.E.P.R. Discussion Papers.
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  27. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-24, Autumn.
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