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Future EMU Membership and Wage Flexibility in Selected EU Candidate Countries

  • Artur Radziwill
  • Mateusz Walewski

This paper attempts to evaluate wage rigidity related to risks of increased size and volatility of unemployment after the candidate countries enter the EMU. Such evaluation is done through the study of past labour market adjustment mechanisms and, in particular, the role played by the exchange rate movements and independent monetary policy. The paper examines some institutional and structural characteristics of candidate countries labour markets that could influence the wage elasticity. The analysis indicates that generally nominal wages are not flexible in candidate countries. Inflationary surprises and nominal exchange rate movements have an effect on the adjustment, especially during the Russian crisis. On the other hand fast productivity growth creates the environment in which unit labour can adjust to unfavourable labour market outcomes through moderation of real wage dynamics despite nominal stickiness. The paper indicates possible fields of further in-depth research in this area.

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Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0265.

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Length: 51 Pages
Date of creation: 2003
Date of revision:
Handle: RePEc:sec:cnstan:0265
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  1. Krugman, Paul & Venables, Anthony J., 1995. "Globalization and the Inequality of Nations," Working Paper Series 430, Research Institute of Industrial Economics.
  2. von Hagen, Jurgen & Neumann, Manfred J M, 1994. "Real Exchange Rates within and between Currency Areas: How Far Away Is EMU?," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 236-44, May.
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  8. Jan Fidrmuc, 2002. "Migration and regional adjustment to asymmetric shocks in transition economies," CPB Discussion Paper 7, CPB Netherlands Bureau for Economic Policy Analysis.
  9. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  10. Robert J. Gordon, 1996. "Macroeconomic Policy in the Presence of Structural Maladjustment," NBER Working Papers 5739, National Bureau of Economic Research, Inc.
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  12. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
  13. Juan F. Jimeno & Jose Vinals, 1998. "The impact of EMU on European unemployment," Working Papers 34, Oesterreichische Nationalbank (Austrian Central Bank).
  14. Vinals, Jose, 1996. "European monetary integration: A narrow or a wide EMU?," European Economic Review, Elsevier, vol. 40(3-5), pages 1103-1109, April.
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