Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions

Markus Knell

No 124, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: The paper studies the determinants of unemployment in a two-countrymodel, where real wages are the outcome of the strategic interaction between various institutional players (firms, unions, central banks). We show that: (i) the results derived in the recent literature on this topic are not generally robust against the introduction of openness; (ii) the shape of the Calmfors-Driffill curve not only depends on a country's own centralization of wage bargaining (CWB) but rather on home and foreign characteristics; (iii) the model challenges the established belief that a shift to a monetary union (MU) will (negatively) affect unemployment in all member countries by fundamentally changing the nature of strategic interactions. Under certain assumptions our open-economy model suggests that the formation of a MU has no effect whatsoever on structural unemployment.

Keywords: wage-setting; unemployment; monetary union (search for similar items in EconPapers)
JEL-codes: E50 E58 F41 F42 J51 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-ifn, nep-lab and nep-mon
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Citations: View citations in EconPapers (1)

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Working Paper: Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2003:124

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