Wage Flexibility or Wage Coordination? Economic Policy Implications of the Wage-Led Demand Regime in the Euro Area

Engelbert Stockhammer

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: Wage shares have fallen substantially in Europe since the early 1980s. To some extent this is due to a macroeconomic policy package that encourages wage flexibility and wage competition. A system of wage coordination in the Euro area would facility a return to a productivity-oriented wage policy by reducing wage competition. In a recent study on the demand effects of changes in functional income distribution Stockhammer, Onaran und Ederer (2007) find that the Euro area is in a wage-led demand regime. According to their results a reduction of the wage share by 1%-point leads to a reduction of demand by around 0.2%-points of GDP. This finding has far reaching implications for economic policy. A stable wage share would help stabilize demand. The paper aims, first, at clarifying some conceptual issues in the design of a European system of productivity-oriented wage coordination and, second, it discusses the economic policy implications of wage coordination. The present policy package assigns wages the role of a shock absorber. However, as wage reductions do have negative demand effects in a wage-led demand regime, this policy has a deflationary bias. A system of wage coordination will thus have to be complemented by a more active nation fiscal policies and more fiscal redistribution within the EU. If so a regime of productivity oriented wage coordination will help to stabilize demand and it is consistent with price stability.

Keywords: macroeconomics; economic policy; policy mix; wage coordination; European Union (search for similar items in EconPapers)
JEL-codes: E20 E24 E50 E60 J30 J50 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-eec, nep-lab, nep-mac and nep-pke
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://per.umass.edu/fileadmin/pdf/working_papers ... rs_151-200/WP160.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to per.umass.edu:443 (No such host is known. )

Related works:
Journal Article: Wage Flexibility or Wage Coordination? Economic Policy Implications of the Wage-led Demand Regime in the Euro Area (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uma:periwp:wp160

Access Statistics for this paper

More papers in Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst Contact information at EDIRC.
Bibliographic data for series maintained by Judy Fogg ( this e-mail address is bad, please contact ).