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The role of wages in the Eurozone

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  • Lucio Baccaro
  • Tobias Tober

Abstract

There are two main political economy explanations of the Eurocrisis. The labor market view regards cross-country differences in wage bargaining institutions as the root cause of the crisis. The finance view, instead, emphasizes cross-border financial flows and downplays labor market institutions. For the first time, we attempt to assess these two explanations jointly. We find that financial flows are better predictors of nominal wage growth than labor market institutions. At the same time, we show that wage moderation matters for bilateral export performance in the important case of Germany, but not for other countries. These results suggest that imposing wage moderation and labor market reforms onto the countries of the European periphery was unlikely to improve their plight. In contrast, stimulating wage growth in Germany might have contributed to rebalancing the Eurozone.

Suggested Citation

  • Lucio Baccaro & Tobias Tober, 2022. "The role of wages in the Eurozone," Review of International Political Economy, Taylor & Francis Journals, vol. 29(4), pages 1263-1286, July.
    • Handle: RePEc:taf:rripxx:v:29:y:2022:i:4:p:1263-1286
    DOI: 10.1080/09692290.2021.1888143
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    Cited by:

    1. Sascha Keil & Walter Paternesi Meloni, 2024. "Kaldorian cumulative causation in the Euro area: an empirical assessment of divergent export competitiveness," Chemnitz Economic Papers 063, Department of Economics, Chemnitz University of Technology.
    2. Donato Di Carlo & Christian Lyhne Ibsen & Oscar Molina, 2024. "The new political economy of public sector wage-setting in Europe: Introduction to the special issue," European Journal of Industrial Relations, , vol. 30(1), pages 5-30, March.

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