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How bad is Divergence in the Euro-Zone? Lessons from the United States of America and Germany

  • Sebastian Dullien

    ()

    (Financial Times Deutschland)

  • Ulrich Fritsche

    ()

    (Department for Economics and Politics, University of Hamburg, and DIW Berlin)

This paper compares relative unit labour cost developments in the countries of the euro-area since the beginning of the European Monetary Union (EMU) both with historical developments and with intra-regional unit labour cost developments in the United States of America and Germany. To this end, unit labour cost indices for the US states and census regions from 1977 to 1997 as well as for the German Länder from 1970 to 2004 have been constructed. Against this benchmark, it is found that unit labour cost increases since 1999 in Portugal and to a lesser extent in Spain and Greece can be judged as excessive, pointing at labour market rigidities which might impair smooth working of EMU in the future.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_5_2006.pdf
File Function: First version, 2006
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Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200605.

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Length: 34 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:hep:macppr:200605
Contact details of provider: Web page: http://www.wiso.uni-hamburg.de/dwp

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  1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  2. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS.
  3. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
  4. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May.
  5. Bernd Hayo, 2007. "Is European Monetary Policy Appropriate for the EMU Member Countries? A Counterfactual Analysis," Money Macro and Finance (MMF) Research Group Conference 2006 36, Money Macro and Finance Research Group.
  6. Enderlein, Henrik, 2004. "Nationale Wirtschaftspolitik in der europäischen Währungsunion," Schriften aus dem Max-Planck-Institut für Gesellschaftsforschung Köln, Max Planck Institute for the Study of Societies, volume 49, number 49, 8.
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