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Labor Markets and Monetary Union; a Strategic Analysis

Author

Listed:
  • Alex Cukierman

    (Tel Aviv University and CentER, Tilburg University)

  • Francesco Lippi

    (Bank of Italy, Research Department and CEPR)

Abstract

This paper analyzes the macroeconomic consequences of the establishment of a monetary union in the presence of unionized labor markets. It is shown that the effects of the formation of a monetary union depend on several labor market features, such as the degree of centralization of wage bargaining, labor unions' inflation aversion and the degree of substitutability between the labor of different unions. In particular, the switch from national monetary policies to a unified monetary policy usually affects both inflation and unemployment, even when all structural parameters of the economy and of unions' and policymakers' preferences remain the same. The benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labor unions more aggressive, increasing unemployment. Qualifications to this result are provided and their robustness is investigated under alternative structural assumptions, like crosscountry asymmetries, (preunion) ERM membership and wage leadership.

Suggested Citation

  • Alex Cukierman & Francesco Lippi, 2000. "Labor Markets and Monetary Union; a Strategic Analysis," Temi di discussione (Economic working papers) 365, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_365_00
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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