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Wage Determination in Economies in Transition: Ireland Spain and Portugal

  • John FitzGerald

    (Economic and Social Research Institute (ESRI))

This paper considers the experience of three existing member states and how the process of convergence has affected, and in turn been affected by, the performance of their labour markets. It concentrates on the process of wage determination in three countries Ireland, Spain and Portugal. In the case of Ireland, while EU membership occurred in 1973, the process of transition began around 1960 and has continued over a protracted period of forty years. For Portugal and Spain the process has been more concentrated. Liberalisation and democratisation of their economies took place in the 1970s and EU membership occurred in 1986. The changes that took place in these societies affected the labour market both directly and indirectly. In this paper we consider how the process of transition, including freeing of trade and EU membership, has affected both the demand for labour and the supply of labour. In the case of labour supply the role of trade unions has changed, with direct implications for the wage bargaining process itself. EU membership has also opened up the possibility of migration affecting labour supply. On the demand side, membership of the EU and the completion of the Single Market have changed the focus for many of the firms operating in these previously rather closed economies. Today firms producing tradable goods and services are competing in a global market and this has important implications for the factors driving their demand for labour. In Section 2 of this paper we examine the movement of wage rates over the period of convergence. In Section 3 we set out models of wage determination that allow for new effects on wage determination arising from the EU integration process. Section 4 describes the results obtained from estimating these models using data for Ireland, Spain and Portugal. Conclusions are discussed in Section 5.

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Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP141.

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Length: 19 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:esr:wpaper:wp141
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  1. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
  2. repec:fth:inseep:9645 is not listed on IDEAS
  3. McCoy, Daniel & Duffy, David & MacCoille, C, 2000. "Quarterly Economic Commentary, December 2000," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20004, March.
  4. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  5. Olympia Bover & Pilar García-Perea & Pedro Portugal, 1998. "A Comparative Study of The Portuguese and Spanish Labour Markets," Working Papers w199801, Banco de Portugal, Economics and Research Department.
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  9. O'Rourke, Kevin H. & Williamson, Jeffrey G., 1997. "Around the European periphery 1870 1913: Globalization, schooling and growth," European Review of Economic History, Cambridge University Press, vol. 1(02), pages 153-190, August.
  10. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  11. John FitzGerald & Ide Kearney, 2000. "Convergence in Living Standards in Ireland: The Role of the New Economy," Papers WP134, Economic and Social Research Institute (ESRI).
  12. John Curtis & John FitzGerald, 1994. "Convergence in an Open Labour Market," Papers WP045, Economic and Social Research Institute (ESRI).
  13. John FitzGerald, 1998. "Wage Formation and the Labour Market," Papers WP095, Economic and Social Research Institute (ESRI).
  14. Duffy, David & FitzGerald, John & Kearney, Ide & Smyth, Diarmaid, 1999. "Medium-Term Review 1999-2005, No. 7," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR07, March.
  15. Bradley, John & Fitzgerald, John, 1988. "Industrial output and factor input determination in an econometric model of a small open economy," European Economic Review, Elsevier, vol. 32(6), pages 1227-1241, July.
  16. Ide Kearney, 1998. "Is There A Stable Migration Equation For Ireland?," Papers WP097, Economic and Social Research Institute (ESRI).
  17. Ray Barrell & Karen Dury, 2001. "Asymmetric Labour Markets in a Converging Europe: Do Differences Matter?," Economics Working Papers 002, European Network of Economic Policy Research Institutes.
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