The Challenge of the Early Years
Edited by Marco Buti and André Sapir
Chapter 11: Wage Discipline in EMU. A Feature of the Early Years. Only?
11. Wage discipline in EMU. A feature of the early years. Only?* Karl Pichelmann** 1. INTRODUCTION The formation of EMU has been expected to exert a profound impact on the actors in the market, in particular aﬀecting price setting and wage bargaining behaviour of economic agents in a macroeconomic environment characterized by a single, stability-oriented monetary policy for the euro area and sound national ﬁscal policies in accordance with the provisions of the Treaty and the Stability and Growth Pact designed to avoid any conﬂict with monetary policy.1 The debate about the likely impact of EMU on wage formation has centred around three diﬀerent, though interconnected, aspects: (i) the necessary degree of nominal wage ﬂexibility to compensate for the loss of the exchange-rate instrument; (ii) the direct impact on the wage-setting curve and, thus, on equilibrium unemployment; and (iii) the impact on labour market institutions, in particular wage bargaining mechanisms. It has been widely held that, in general, EMU should provide improved framework conditions for employment-compatible wage bargaining behaviour as the link between wage and employment trends becomes more evident and stringent. And indeed, recent years have seen an impressive degree of wage discipline in the euro area. Nominal unit labour cost inﬂation has quickly fallen within the bandwidth compatible with the price stability goal of the ECB, and the decline in nominal unit labour cost growth has been even sharper than the corresponding fall in price inﬂation. Against this general background, the purpose of...
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