Scandinavian Working Papers in Economics

Working Paper Series,
Trade Union Institute for Economic Research

No 155: Relative Wages in Monetary Union and Floating

Juhana Vartiainen
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Juhana Vartiainen: Trade Union Institute for Economic Research, Postal: Wallingatan 38, SE-111 24 Stockholm, Sweden

Abstract: We analyse a small open economy with a tradable and a sheltered sector. If the unions that operate in each sector coordinate their wage demands sectorwise, the choice of monetary regime - floating cum inflation target vs EMU - may affect the relative wages and prices of the economy. We show that EMU results in lower prices for tradable goods and lower real wages in the traded sector while opposite results hold for sheltered sector prices and wages. Thus, if large unions behave strategically, the choice of monetary regime has far-reaching structural implications.

Keywords: Trade unions; Wage bargaining; EMU; Monetary policy

JEL-codes: E24; J31; J42

20 pages, November 4, 1999

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Published as
Juhana Vartiainen, (2002), 'Relative Wages in Monetary Union and Floating', Scandinavian Journal of Economics, vol 104, no 2, pages 277-287

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