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Institutions and Wage Formation in the New Europe

Edited by Gabriel Fagan, Francesco Paolo Mongelli and Julian Morgan

Institutions and Wage Formation in the New Europe addresses the role played by institutions in European wage formation with a focus on EMU and institutional change in labour markets.
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Chapter 1: Is European wage-setting different? Evidence from the Occupational Wages around the World data file

Richard B. Freeman and Remco H. Oostendorp


Richard B. Freeman and Remco H. Oostendorp 1 INTRODUCTION To what extent does the pattern of wage outcomes and determinants of wages differ between advanced countries, particularly those in the European Union, and less developed countries? Do the same labour market measures and tools of analysis apply equally to countries with very different levels of economic development, or do wage outcomes differ so much between countries as to put differences in institutional wage-setting at the heart of labour market analysis? The Washington consensus view of the world economy gives little scope for differences in institutions and levels of economic development to affect outcomes, once countries accept markets as the main allocative device for labour. After all, ‘markets are market are markets’, with the same modes of operation across countries. From this perspective, globalization should reduce differences in wages and wage structures across countries, with the global labour market replacing national markets to a considerable extent over the long run.1 By contrast, institutionally oriented economists assume that labour markets differ depending on institutional factors. They expect that labour markets with the ‘social partnership’ arrangements and related thick institutions of most European countries would operate differently from those in other countries, yielding different wage outcomes and different relations to wagedetermining factors. To what extent do wage patterns and the determinants of wages differ between advanced European countries and the less developed countries which make up the bulk of the world’s working population and between European and other advanced countries? This chapter uses...

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