Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour

Heiner Mikosch and Jan-Egbert Sturm

No 11-280, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: By using a model of trade union behaviour Gruener (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. Following Gruener's model, monetary centralization lets the central bank react less flexibly to national business cycle movements. This increases the amplitude of national business cycles which, in turn, leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.

Pages: 29 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-lab and nep-mac
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http://dx.doi.org/10.3929/ethz-a-006435838 (application/pdf)

Related works:
Journal Article: Has the EMU reduced wage growth and unemployment? Testing a model of trade union behavior (2012)
Working Paper: Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour (2011)
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