Seminar Papers,
Stockholm University, Institute for International Economic Studies

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 co-ordination and social pacts in the medium run. But such co-ordination is not likely to be sustainable in the long run, as it conflicts with other forces working in the direction of decentralization and deunionisation. 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 co-ordination of wage bargaining, such a development is improbable in view of the co-ordination costs involved. If transnational co-ordination develops, it is most likely to occur within multinational firms.

Keywords: wage; bargaining; EMU

JEL-codes: E24

43 pages, May 5, 2001

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