Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour

KOF Swiss Economic Institute Working Paper No. 280

29 Pages Posted: 29 Apr 2011

See all articles by Heiner Mikosch

Heiner Mikosch

KOF Swiss Economic Institute

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2011

Abstract

By using a model of trade union behaviour Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. Following Grüner’s model, monetary centralization lets the central bank react less flexibly to national business cycle movements. This increases the amplitude of national business cycles which, in turn, leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.

Keywords: Common currency areas, EMU, Phillips curve, unemployment, wages

JEL Classification: E52, E58

Suggested Citation

Mikosch, Heiner and Sturm, Jan-Egbert, Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour (April 27, 2011). KOF Swiss Economic Institute Working Paper No. 280. Available at SSRN: https://ssrn.com/abstract=1824578 or http://dx.doi.org/10.2139/ssrn.1824578

Heiner Mikosch (Contact Author)

KOF Swiss Economic Institute ( email )

Weinbergstrasse 35
Zurich, CH-8092
Switzerland

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

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