Relative Wages in Monetary Union and Floating

Juhana Vartiainen

No 156, Working Papers from Työn ja talouden tutkimus LABORE, Labour Institute for Economic Research LABORE

Abstract: We analyse a small open economy with a tradable and a sheltered sector. If the unions that operate in each sector coordinate their wage demands sectorwise, the choice of monetary regime – floating cum inflation target vs. EMU – may affect the relative wages and prices of the economy. We show that EMU results in lower prices for tradable goods and lower real wages in the traded sector while opposite results hold for sheltered sector prices and wages. Thus, if large unions behave strategically, the choice of monetary regime has far-reaching structural implications.

JEL-codes: E24 E42 J31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1999-11-04
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