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Labour Markets and Monetary Union: A Strategic Analysis

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  • Cukierman, Alex
  • Lippi, Francesco

Abstract

This paper analyzes the macroeconomic consequences of the establishment of a monetary union in the presence of unionized labour markets. It is shown that the effects of the formation of a monetary union depend on several labour market features, such as the degree of centralization of wage bargaining, labour unions' inflation aversion and the degree of substitutability between the labour 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 policy makers' 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 uur unions more aggressive, increasing unemployment. Qualifications to this result are provided and their robustness is investigated under alternative structural assumptions, like cross-country asymmetries, (pre-union) ERM membership and wage leadership.

Suggested Citation

  • Cukierman, Alex & Lippi, Francesco, 1999. "Labour Markets and Monetary Union: A Strategic Analysis," CEPR Discussion Papers 2236, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2236
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    More about this item

    Keywords

    Inflation; Labour Unions; Monetary Union; Strategic Monetary Policy; Unemployment;
    All these keywords.

    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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