Monetary policy and wage bargaining in the EMU: restrictive ECB policies, high unemployment, nominal wage restraint and inflation above the target
DOI:
https://doi.org/10.13133/2037-3643/9913Keywords:
Bargaining, EMU, European Monetary Union, Inflation, Monetary Policy, Monetary Union, Monetary, Money, Policy, Union, Wage Bargaining, WageAbstract
Assessing the effects of monetary policy and wage bargaining on employment andinflation in the European Monetary Union (EMU), the first step sees development of a Post-Keynesian competitive claims model of inflation with endogenous money. In this model the NAIRU is considered to be a short-run limit to employment enforced by independent and conservative central banks. In the long run, however, the NAIRU will follow actual unemployment and is therefore also dependent on the forces determining aggregate demand, including monetary policies. But the NAIRU may also be reduced through effectively co-ordinated wage bargaining, as has been shown by institutional political economists. Applying these considerations to the economic performance of the EMU, different scenarios determined by wage bargainingcoordination and the European Central Bank's (ECB) monetary policies are developed. It is shown that the first phase of the EMU was dominated by uncoordinated wage bargaining across the EMU and an "anti-growth-bias" of theECB. Thus the euro area was plagued with nominal wage restraint, highunemployment and inflation above the ECB target. Economic performance will improve if the ECB abandons its asymmetric monetary strategy. This may be facilitated by a higher degree of effective wage bargaining co-ordination across the EMU.
JEL Codes: E52, J52, F36, J31
References
ALLSOPP, C. and D. VINES (1998), "The assessment: macroeconomic policy after EMU", Oxford Review of Economic Policy, vol. 14, pp. 1-23.
ARESTIS, P. (1996), "Post Keynesian economics: towards coherence", Cambridge Journal of Economics, vol. 20, pp. 111-35.
ARESTIS, P. et al. (2001), "The causes of euro instability", in P. Arestis, A. Brown and M. Sawyer eds, The Euro. Evolution and Prospects, Edward Elgar, Cheltenham, pp. 106-34.
ARESTIS, P., K. MCCAULEY and M. SAWYER (2001), "An alternative stability pact for the European Union", Cambridge Journal of Economics, vol. 25, pp. 113-30.
BARRO, R.J. and D.B. GORDON (1983), "Rules, discretion and reputation in a model of monetary policy", Journal of Monetary Economics, vol. 12, pp. 101-21.
BEAN, C. (1998), "Monetary policy under EMU", Oxford Review of Economic Policy, vol. 14, pp. 41-53.
BERGER, H., J. DE HAAN and S.C.W. EIJFFINGER (2000), "Central bank independence: an update of theory and evidence", CESifo Working Paper Series, no. 255, Munich.
BHADURI, A. and S. MARGLIN (1990), "Unemployment and the real wage: the economic basis for contesting political ideologies", Cambridge Journal of Economics, vol. 14, pp. 375-93.
BIBOW, J. (1999), "Reflections on the current fashion for central bank independence", Beiträge aus dem Institut für Statistik und Ökonometrie der Universität Hamburg, Nr. 41.
BIBOW, J. (2001), "Making EMU work: some lessons from the 1990s", International Review of Applied Economics, vol. 15, pp. 233-59.
BIBOW, J. (2001), "Easy money through the back door", Working Paper, no. 323, Jerome Levy Institute of Bard College.
BIBOW, J. (2002), "The monetary policies of the European Central Bank and euro's (mal)performance: a stability-oriented assessment", International Review of Applied Economics, vol. 16, pp. 31-50.
BLANCHARD, O. and L.F. KATZ (1997), "What we know and do not know about the natural rate of unemployment", Journal of Economic Perspectives, vol. 11, pp. 51- 72.
BOWLES, S. and R. BOYER (1995), "Wages, aggregate demand, and employment in an open economy: an empirical investigation", in G.A. Epstein and H.M. Gintis eds, Macroeconomic Policy after the Conservative Era, Cambridge University Press, Cambridge, pp. 143-71.
CALMFORS, L. (1993), "Centralisation of wage bargaining and macroeconomic performance – a survey", OECD Economic Studies, no. 21, pp. 161-91.
CALMFORS, L. (1998), "Macroeconomic policy, wage setting, and employment – what difference does the EMU make?", Oxford Review of Economic Policy, vol. 14, pp. 125-51.
CALMFORS, L. (2001), "Wages and wage-bargaining institutions in the EMU – a survey of the issues", Empirica, vol. 28, pp. 325-51.
CALMFORS, L. and J. DRIFFILL (1988), "Centralization of wage bargaining", Economic Policy, vol. 3, pp. 13-61.
CARLIN, W. and D. SOSKICE (1990), Macroeconomics and the Wage Bargain. A Modern Approach to Employment, Inflation and the Exchange Rate, Oxford University Press, Oxford.
CORNWALL, J. and W. CORNWALL (1998), "Unemployment costs and inflation targeting", in P. Arestis and M. Sawyer eds, The Political Economy of Central Banking, Edward Elgar, Cheltenham, pp. 49-66.
COTTRELL, A. (1994), "Post-Keynesian monetary economics", Cambridge Journal of Economics , vol. 18, pp. 587-605.
CROUCH, C. (2000), "National wage determination and European Monetary Union", in C. Crouch ed., After the Euro. Shaping Institutions for Governance in the Wake of European Monetary Union, Oxford University Press, Oxford, pp. 203-26.
DAVIDSON, P. (1994), Post Keynesian Macroeconomic Theory, Edward Elgar, Aldershot.
DEBELLE, G. and S. FISCHER (1994), "How independent should a central bank be?", in J.C. Fuhrer ed., Goals, Guidelines, and Constraints Facing Monetary Policymakers, Federal Reserve Bank of Boston Conference Series, Boston, pp. 195-221.
ECB (1999), "Die stabilitätsorientierte geldpolitische Strategie des Eurosystems", Monatsbericht, January, pp. 43-56.
ECB (1999-2002), Monthly Bulletins, Frankfurt a.M.
EIJFFINGER, S. and J. DE HAAN (1996), "The political economy of central banking", Special Papers in International Economics, no. 19, Princeton University.
EPSTEIN, G.A. (1992), "Political economy and comparative central banking", Review of Radical Political Economics, vol. 24, pp. 1-30.
FEDERAL RESERVE BANK OF NEW YORK (2002), "Historical changes of the Fed fund and discount rate (1971-Present)"; http://www.ny.frb.org/pihome/statistics/ dlyrates/fedrate.html.
FISHER, I. (1933), "The debt-deflation theory of great depressions", Econometrica, vol. 1, pp. 337-57.
FLANAGAN, R.J. (1999), "Macroeconomic performance and collective bargaining: an international perspective", Journal of Economic Literature, vol. XXXVII, pp. 1150-75.
FLASSBECK, H. et al. (1997), "Unemployment in Europe and the U.S.: macroeconomics is the key", Internationale Politik und Gesellschaft, Nr. 4/97, pp. 412-24.
FORDER, J. (1998), "Central bank independence – conceptual clarifications and interim assessment", Oxford Economic Papers, vol. 50, pp. 307-34.
FRANZESE, R.J. (2001), "Institutions and sectoral interactions in monetary policy and wage/price-bargaining", in P.A. Hall and D. Soskice eds, Varieties of Capitalism. Institutional Foundations of Comparative Advantage, Oxford University Press, Oxford, pp. 104-44.
FRANZESE, R.J. (2001), "Strategic interaction of monetary policymakers and wage/price bargainers: a review with implications for the European commoncurrency area", Empirica, vol. 28, pp. 457-86.
FRITSCHE, U. et al. (1999), "Is there a need for a co-ordinated European wage and labour market policy?", in G. Huemer, M. Mesch and F. Traxler eds, The Role of Employer Associations and Labour Unions in the EMU, Ashgate, Aldershot, pp. 65-84.
GALBRAITH, J.K. (1997), "Time to ditch the NAIRU", Journal of Economic Perspectives, vol. 11, pp. 93-108.
GÄRTNER, M. (1997), "Central bank independence and the sacrifice ratio: the dark side of the force", Swiss Journal of Economics and Statistics, vol. 133, pp. 513-38.
GORDON, R.J. (1997), "The time-varying NAIRU and its implications for economic policy", Journal of Economic Perspectives, vol. 11, pp. 11-32.
HALL, P.A. (1994), "Central bank independence and coordinated wage bargaining: their interaction in Germany and Europe", German Politics and Society, Autumn, pp. 1-23.
HALL, P.A. and R.J. FRANZESE (1998), "Mixed signals: central bank independence, coordinated wage bargaining, and European Monetary Union", International Organization, vol. 52, pp. 505-35.
HEIN, E. (1999), "Interest rates, income shares and investment in a Kaleckian model", Political Economy. Review of Political Economy and Social Sciences, issue 5, pp. 5- 22.
HEIN, E. (2002), "Central bank independence, labour market institutions and the perspectives for inflation and employment in the European Monetary Union", Political Economy. Review of Political Economy and Social Sciences, issue 10, pp. 37- 64.
HEIN, E. and H. KRÄMER (1997), "Income shares and capital formation: patterns of recent developments", Journal of Income Distribution, vol. 7, pp. 5-28.
HEIN, E. and C. OCHSEN (2002), "Regimes of interest rates, income shares, savings, and investment: a Kaleckian model and empirical estimations for some advanced OECD-economies", Metroeconomica, forthcoming.
HEINE, M. and H. HERR (2001), Das Eurosystem: eine paradigmenorientierte Darstellung und kritische Würdigung der europäischen Geldpolitik, Rosa Luxemburg Stiftung, Berlin.
HEWITSON, G. (1995), "Post-Keynesian monetary theory: some issues", Journal of Economic Surveys, vol. 9, pp. 285-310.
HOFFMANN, R. and E. MERMET (2000), "Wage coordination in the European Union – challenges for the coordination of collective bargaining", in R. Hoffmann et al. eds, Transnational Industrial Relations in Europe, Hans Böckler Stiftung, Düsseldorf, pp. 63-84.
HORN, G.A. (1999), "Zur Koordination von Geld- und Lohnpolitik. Eine empirische Analyse für die USA und Deutschland", in W. Filc and C. Köhler eds, Macroeconomic Causes of Unemployment: Diagnosis and Policy Recommendations, Duncker & Humblot, Berlin, pp. 419-39.
JORDAN, T.J. (1997), "Disinflation costs, accelerating inflation gains, and central bank independence", Weltwirtschaftliches Archiv, vol. 133, pp. 1-21.
KALECKI, M. (1943), "Political aspects of full employment", in reprinted Selected Essays on the Dynamics of the Capitalist Economy, Cambridge University Press, Cambridge, 1971, pp. 138-45.
KALMBACH, P. (2000), "Höhere Arbeitsmarktflexibilität oder flexiblere Wirtschaftspolitik? Zu den Ursachen der unterschiedlichen Beschäftigungsentwicklung in den USA und in Deutschland", Wirtschaftspolitische Diskurse, Nr. 132, Friedrich-Ebert-Stiftung, Bonn.
KITTEL, B. and F. TRAXLER (2001), "Lohnverhandlungssysteme und Geldpolitik", Wirtschaft und Gesellschaft, Bd. 27, pp. 11-40.
KYDLAND, F.E. and E.C. PRESCOTT (1977), "Rules rather than discretion: the inconsistency of optimal plans", Journal of Political Economy, vol. 85, pp. 473-92.
LAVOIE, M. (1984), "The endogeneous flow of credit and the Post Keynesian theory of money", Journal of Economic Issues, vol. 18, pp. 771-97.
LAVOIE, M. (1992), Foundations of Post-Keynesian Economic Analysis, Edward Elgar, Aldershot.
LAVOIE, M. (1993), "A post-classical view of money, interest, growth and distribution", in G. Mongiovi and C. Rühl eds, Macroeconomic Theory: Diversity and Convergence, Cambridge University Press, Cambridge, pp. 3-21.
LAVOIE, M. (1996), "Horizontalism, structuralism, liquidity preference and the principle of increasing risk", Scottish Journal of Political Economy, vol. 43, pp. 275- 300.
LAYARD, R., S. NICKELL and R. JACKMAN (1991), Unemployment. Macroeconomic Performance and the Labour Market, Oxford University Press, Oxford.
LOMBARD, M. (2000), "Restrictive macroeconomic policies and unemployment in the European Union", Review of Political Economy, vol. 12, pp. 317-32.
MARX, K. (1867), Das Kapital. Kritik der politischen Ökonomie, Erster Band: Der Produktionsprozeß des Kapitals.
MARX, K. (1962), Das Kapital. Kritik der politischen Ökonomie, Erster Band: Der Produktionsprozeß des Kapitals, Marx-Engels-Werke, Band 23, Berlin, Dietz.
MESCH, M. (1999), "Vom Wettbewerbskorporatismus zur transnationalen Koordination der Lohnpolitik in der EU?" (Teil 1), Wirtschaft und Gesellschaft, Bd. 25, pp. 387-422.
MESCH, M. (2000), "Vom Wettbewerbskorporatismus zur transnationalen Koordination der Lohnpolitik in der EU?" (Teil 2), Wirtschaft und Gesellschaft, Bd. 26, pp. 7-63.
MEYER, L.H. (2001), "Inflation targets and inflation targeting", Federal Reserve Bank of St. Louis Review, vol. 83, pp. 1-13.
MOORE, B.J. (1989), "The endogeneity of credit money", Review of Political Economy, vol. 1, pp. 65-93.
OECD (1997), "Economic performance and the structure of collective bargaining", Employment Outlook, July, pp. 63-92.
OECD (2001), Economic Outlook, no. 70, data on CD-Rom, Paris.
PALLEY, T. (1998), "Restoring prosperity: why the U.S. model is not the answer for the United States or Europe", Journal of Post Keynesian Economics, vol. 20, pp. 337-52.
PICHELMANN, K. (2001), "Monitoring wage developments in EMU", Empirica, vol. 28, pp. 353-73.
PIVETTI, M. (1996), "Maastricht and the political independence of central banks: theory and facts", Contributions to Political Economy, vol. 15, pp. 81-104.
POSEN, A. (1993), "Why central bank independence does not cause low inflation: there is no institutional fix for politics", in R. O'Brien ed., Finance and the International Economy, Oxford University Press, Oxford, pp. 41-65.
POSEN, A. (1998), "Central bank independence and disinflationary credibility: a missing link?", Oxford Economic Papers, vol. 50, pp. 335-59.
ROGOFF, K. (1985), "The optimal degree of commitment to an intermediate monetary target", Quarterly Journal of Economics, vol. 100, pp. 1169-89.
ROUSSEAS, S. (1998), Post Keynesian Monetary Economics, third edition, Macmillan, Basingstoke.
ROWTHORN, R.E. (1977), "Conflict, inflation and money", Cambridge Journal of Economics, vol. 1, pp. 215-39.
SARANTIS, N. (1994), "Inflation", in P. Arestis, and M. Sawyer eds, The Elgar Companion to Radical Political Economy, Edward Elgar, Aldershot, pp. 208-12.
SAWYER, M. (1997), "Income distribution, macroeconomic analysis and barriers to full employment", Journal of Income Distribution, vol. 7, pp. 147-60.
SAWYER, M. (1999), "The NAIRU: a critical appraisal", International Papers in Political Economy, vol. 7, pp. 1-39.
SAWYER, M. (2002), "The NAIRU, aggregate demand and investment", Metroeconomica, vol. 53, pp. 66-94.
SCHULTEN, T. (2001), "A European solidaristic wage policy? Conceptual reflections on a Europeanisation of trade union wage policy", Discussion & Working Papers, DWP 2001.01.01, European Trade Union Institute, Brussels.
SCHULTEN, T. (2001), "The European Metalworkers' Federation's approach to a European coordination of collective bargaining – Experiences, problems and prospects", in T. Schulten and R. Bispinck eds, Collective Bargaining under the Euro. Experiences from the European Metal Industry, European Trade Union Institute, Brussels, pp. 303-32.
SCHULTEN, T. (2002), "Europeanisation of collective bargaining. An overview on trade union initiatives for a transnational coordination of collective bargaining policy", WSI Discussion Paper, no. 101, WSI in der Hans-Böckler-Stiftung, Düsseldorf.
SCHULTEN, T. and R. BISPINCK, R. eds (2001), Collective Bargaining under the Euro. Experiences from the European Metal Industry, European Trade Union Institute, Brussels.
SCHÜRZ, M. (2001), "Die Glaubwürdigkeit der Federal Reserve Bank: Vertrauen zwischen Eliten", Wirtschaft und Gesellschaft, Bd. 27, pp. 69-86.
SMITHIN, J. (1994), Controversies in Monetary Economics. Ideas, Issues and Policy, Edward Elgar, Aldershot.
SOLOW, R.M. (2000), "Unemployment in the United States and in Europe: a contrast and the reasons", Ifo-Studien, vol. 46, pp. 1-12.
SOSKICE, D. (1990), "Wage determination: the changing role of institutions in advanced industrialized countries", Oxford Review of Economic Policy, vol. 4, pp. 36-61.
SOSKICE, D. (2000), "Wage determination in the EMU", in R. Hoffmann et al. eds, Transnational Industrial Relations in Europe, Hans Böckler Stiftung, Düsseldorf, pp. 45-51.
SOSKICE, D. and T. IVERSEN (2001), "Multiple wage bargaining systems in the single European currency area", Empirica, vol. 28, pp. 435-56.
STAIGER, D., J.H. STOCK and M.W. WATSON (1997), "The NAIRU, unemployment and monetary policy", Journal of Economic Perspectives, vol. 11, pp. 33-49.
TRAXLER, F. (1999), "Wage-setting institutions and European Monetary Union", in G. Huemer, M. Mesch and F. Traxler eds, The Role of Employer Associations and Labour Unions in the EMU, Ashgate, Aldershot, pp. 115-35.
Downloads
Published
How to Cite
Issue
Section
License
