Work

The role of wages in the Eurozone

Year: 2021

Type: article

Abstract: There are two main political economy explanations of the Eurocrisis. The labor market view regards cross-country differences in wage bargaining institutions as the root cause of the crisis. The finance view, instead, emphasizes cross-border financial flows and downplays labor market institutions. For the first time, we attempt to assess these two explanations jointly. We find that financial flows are better predictors of nominal wage growth than labor market institutions. At the same time, we show that wage moderation matters for bilateral export performance in the important case of Germany, but not for other countries. These results suggest that imposing wage moderation and labor market reforms onto the countries of the European periphery was unlikely to improve their plight. In contrast, stimulating wage growth in Germany might have contributed to rebalancing the Eurozone.

Source: Review of International Political Economy

DOI: 10.1080/09692290.2021.1888143

Authors: Lucio Baccaro, Tobias Tober

Institutions: Max Planck Institute for the Study of Societies, University of Konstanz

Language: English

Topic: European Monetary and Fiscal Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

Funder: Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung