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Has EMU Had Any Impact on the Degree of Wage Restraint?

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  • Adam S. Posen

    () (Peterson Institute for International Economics)

  • Daniel Popov Gould

    (Peterson Institute for International Economics)

Abstract

This working paper investigates the European Monetary Unification's (EMU) effect on wage restraint—the degree to which wage increases do or do not exceed productivity growth. We find in cross-sectional investigations that wage restraint either is unchanged or has increased following EMU in the vast majority of countries. This finding contradicts the predictions of a widely cited family of models of coordination of labor market bargaining. In particular, one would have expected Germany to display the greatest decline in wage restraint post-EMU under these models, but in our time-series analysis we find no indication of such a decline. The overall shift toward greater wage restraint is consistent with the models that emphasize the gains from monetary credibility. The time-series evidence on Italy, which shows a significant increase in wage restraint after eurozone entry, also supports this view. That said, the increase in wage restraint in the eurozone is matched by that associated with the increase in credibility seen in the United Kingdom and Sweden after their adoption of inflation targeting post-1992.

Suggested Citation

  • Adam S. Posen & Daniel Popov Gould, 2006. "Has EMU Had Any Impact on the Degree of Wage Restraint?," Working Paper Series WP06-6, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp06-6
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    References listed on IDEAS

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    Cited by:

    1. Sánchez, Marcelo, 2010. "Wage restraint and monetary union," Economic Modelling, Elsevier, vol. 27(1), pages 134-142, January.
    2. Ulf Söderström, 2010. "Reevaluating Swedish Membership in the European Monetary Union: Evidence from an Estimated Model," NBER Chapters,in: Europe and the Euro, pages 379-414 National Bureau of Economic Research, Inc.
    3. Sánchez, Marcelo, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 927, European Central Bank.
    4. Ulf Söderström, 2008. "Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model," NBER Working Papers 14519, National Bureau of Economic Research, Inc.
    5. Carsten Hefeker, 2006. "The monetary policy consequences of enlargement," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(4), pages 29-34, December.
    6. Sánchez, Marcelo, 2009. "National prices and wage setting in a currency union," Working Paper Series 1058, European Central Bank.
    7. Nicolas Canry & Arnaud Lechevalier, 2006. "Wage share variations in France and Germany since 1970: what does really matter?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00140529, HAL.
    8. Paul Ramskogler, 2013. "The National–Transnational Wage-Setting Nexus in Europe: What have We Learned from the Early Years of Monetary Integration?," Journal of Common Market Studies, Wiley Blackwell, vol. 51(5), pages 916-930, September.

    More about this item

    Keywords

    EMU; wage bargaining; monetary credibility; productivity;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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