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Is Small Really Beautiful? Explaining Different Unemployment Performances within the Euro-Zone

Author

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  • Sebastian Dullien

    (Fachhochschule fŸr Technik und Wirtschaft Berlin - university of applied sciences)

Abstract

This article asks why unemployment performance in small countries in European Monetary Union has been superior to that in large EMU countries. Within a model of monopolistic competition, it is shown that a possible answer is a beggar-thy-neighbor policy by the small countries. When dropping the real balance effect from a standard model of monopolistic competition, it is found that a monopoly trade union setting wages for a large economy cannot inßuence employment and output by changing nominal wages. A trade union in a small country which is in a monetary union with a large country, on the other hand, can increase output and employment by wage restraint.

Suggested Citation

  • Sebastian Dullien, 2003. "Is Small Really Beautiful? Explaining Different Unemployment Performances within the Euro-Zone," European Political Economy Review, European Political Economy Infrastructure Consortium, vol. 1(Autumn), pages 126-151.
    • Handle: RePEc:epe:journl:v:1:y:2003:i:autumn:p:126-151
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    File URL: http://www.ugbs.org/weru/eper/vol1/no2/dullien.pdf
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    Citations

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    Cited by:

    1. Johnston, Alison & Regan, Aidan, 2014. "European integration and the incompatibility of national varieties of capitalism problems with institutional divergence in a monetary union," MPIfG Discussion Paper 14/15, Max Planck Institute for the Study of Societies.
    2. Alison Johnston & Aidan Regan, 2016. "European Monetary Integration and the Incompatibility of National Varieties of Capitalism," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 318-336, March.

    More about this item

    Keywords

    EMU; wage bargaining;

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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