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The Effects of European Economic and Monetary Union on Wage Behaviour

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  • Lauer, Charlotte

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Abstract

This paper evaluates the possible consequences of the forthcoming European and Monetary Union on wage behavior. It will be shown that EMU does not influence wage policy directly, but rather indirectly through its implications on other areas of economic policy, predominantly on monetary policy. Consequently, EMU will put increasing pressure on using wage policy as a flexible adjustment variable, since other adjustment mechanisms shall cease to exist. Six European countries were analyzed empirically, which showed that in the past, southern European countries conducted a much more expansive wage policy than northern European countries. However, this competitive disadvantage of the southern countries was more than compensated by exchange rate developments. What will happen when EMU has come into effect? Either fewer devaluation possibilities within EMU will lead to a shift in competitive positions in favor of the northern countries, or a change in wage behavior will be observed. The descriptive analysis shows that, on the eve of EMU, wage policy has become more moderate. This trend could be accelerated by the arrival of EMU. The econometric analysis provides an argument for this: the stability of exchange rates have been proven to have a dampening effect on wage increases in the past, particularly in southern European countries. Whether the extent of these effects will be sufficient to prevent a shift in relative competitive positions, however, remains to be seen.

Suggested Citation

  • Lauer, Charlotte, 1999. "The Effects of European Economic and Monetary Union on Wage Behaviour," IZA Discussion Papers 36, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp36
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    References listed on IDEAS

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    1. Müller, Claudia & Buscher, Herbert S., 1999. "The impact of monetary instruments on shock absorption in EU-Countries," ZEW Discussion Papers 99-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Buscher, Herbert S., 1999. "Business Cycles in EU Member States," ZEW Discussion Papers 99-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Stirböck, Claudia & Heinemann, Friedrich, 1999. "Capital Mobility within EMU," ZEW Discussion Papers 99-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    Cited by:

    1. Patrick A. Puhani, 2001. "Labour Mobility: An Adjustment Mechanism in Euroland? Empirical Evidence for Western Germany, France and Italy," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 127-140, May.
    2. Van Poeck Andrè & Veiner Maret & Plasmans Joseph, 2007. "Wage flexibility in the new European Union members: How different form the “old” members?," wp.comunite 0006, Department of Communication, University of Teramo.
    3. Vassilis Monastiriotis & Sotirios Zartaloudis, 2010. "Beyond the crisis: EMU and labour market reform pressures in good and bad times," LEQS – LSE 'Europe in Question' Discussion Paper Series 23, European Institute, LSE.
    4. Puhani, Patrick A., 1999. "Labour Mobility - An Adjustment Mechanism in Euroland?," IZA Discussion Papers 34, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    European Monetary Union; Euro; wage behavior; wage policy;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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