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

Adam S. Posen () and Daniel Popov Gould
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Daniel Popov Gould: Institute for International Economics

No WP06-06, Peterson Institute Working Paper Series from 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.

Keywords: EMU; wage bargaining; monetary credibility; productivity (search for similar items in EconPapers)
JEL-codes: E58 E25 J58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-lab and nep-mac
Date: Written 2006-08
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Working Paper: Has EMU had any Impact on the Degree of Wage Restraint? (2006)
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