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

Markus Knell

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: The paper studies the determinants of unemployment in a two-country model, 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)
Pages: 45
Date: 2002-05-29
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Citations: View citations in EconPapers (8)

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Working Paper: Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions (2003)
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