Wages and Wage-Bargaining Institutions in the EMU — A Survey of the Issues

Abstract

The paper distinguishes between the impact of the EMU on nominal wage flexibility and on equilibrium real wage and unemployment levels. A perceived need to increase nominal wage flexibility as a substitute for domestic monetary policy and a tendency to less real wage moderation in the EMU are likely to promote informal bargaining coordination and social pacts in the medium run. But such coordination is not likely to be sustainable in the long run, as it conflicts with other forces working in the direction of decentralization and deunionization. This could lead to more government intervention in wage setting during a transitional period. Although monetary unification will strengthen the incentives for higher-level transnational coordination of wage bargaining, such a development is improbable in view of the coordination costs involved. If transnational coordination develops, it is most likely to occur within multinational firms.