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Wage restraint and monetary union

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  • Sánchez, Marcelo

Abstract

Existing work on wage bargaining predicts more aggressive wage setting under monetary union. This is exemplified by Cukierman and Lippi (2001) who postulate that wages are set having area-wide prices in mind. The insight of aggressive wage behaviour has not been confirmed by the EMU experience, which has been characterised by wage moderation. The present paper investigates the possibility of wage restraint using a monetary union model which, realistically, assumes that trade unions set wages with national prices in mind. Drawing on plausible ranges for all parameter values (and macroeconomic shocks), our simulations show that a monetary union elicits real wages that are broadly comparable to those obtained under monetary autonomy. The confidence bounds around these results are rather wide, in particular including scenarios of wage restraint.

Suggested Citation

  • Sánchez, Marcelo, 2010. "Wage restraint and monetary union," Economic Modelling, Elsevier, vol. 27(1), pages 134-142, January.
    • Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:134-142
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