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External Imbalances and the Wage Curve: The Role of Labour and Product Market Regulation

Paulo Santos Monteiro ()

No 61, European Economy - Discussion Papers 2015 - from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper proposes a method to identify how labour market institutions and product market regulation interact with economic shocks, and affect unemployment and wage dynamics during periods of external imbalances corrections. This is done using a general equilibrium model of trade, external imbalances and unemployment that incorporates labour market frictions via a structural wage equation, and implies equilibrium cross-sectional dispersion of unemployment rates. We apply the method to study the role of macroeconomic shocks, labour market institutions and product market regulation in the correction of external imbalances in the European Monetary Union (EMU) over the last decade, and the concurrent heterogeneous unemployment dynamics.

JEL-codes: E52 E58 E61 E62 G01 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-07
New Economics Papers: this item is included in nep-eec and nep-mac
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