Labour Markets and Monetary Union: A Strategic Analysis

Alex Cukierman () and Francesco Lippi

No 2236, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes the macroeconomic consequences of the establishment of a monetary union in the presence of unionized labour markets. It is shown that the effects of the formation of a monetary union depend on several labour market features, such as the degree of centralization of wage bargaining, labour unions' inflation aversion and the degree of substitutability between the labour of different unions. In particular, the switch from national monetary policies to a unified monetary policy usually affects both inflation and unemployment, even when all structural parameters of the economy and of unions' and policy makers' preferences remain the same. The benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labor uur unions more aggressive, increasing unemployment. Qualifications to this result are provided and their robustness is investigated under alternative structural assumptions, like cross-country asymmetries, (pre-union) ERM membership and wage leadership.

Keywords: Inflation; Labour Unions; Monetary Union; Strategic Monetary Policy; Unemployment (search for similar items in EconPapers)
JEL-codes: E50 E58 J50 J51 (search for similar items in EconPapers)
Date: Written 1999-09
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Related works:
Working Paper: Labor markets and monetary union: a strategic analysis (1999)
Working Paper: Labor Markets and Monetary Union; a Strategic Analysis (2000)
Working Paper: Labor Markets and Monetary Union: a Strategic Analysis (2000)
Journal Article: Labour Markets and Monetary Union: A Strategic Analysis (2001)
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