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From Convergence to CrisisLabor Markets and the Instability of the Euro$
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Alison Johnston

Print publication date: 2016

Print ISBN-13: 9781501702655

Published to Cornell Scholarship Online: January 2017

DOI: 10.7591/cornell/9781501702655.001.0001

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From Order to Disorder

From Order to Disorder

How Monetary Union Changed National Labor Markets

Chapter:
(p.26) 2 From Order to Disorder
Source:
From Convergence to Crisis
Author(s):

Alison Johnston

Publisher:
Cornell University Press
DOI:10.7591/cornell/9781501702655.003.0002

This chapter examines how monetary union changed national labor markets in Europe. It begins with a discussion of assumptions and theoretical foundations of a dual-sector economy consisting of the exposed or tradables sector and the sheltered or nontradables sector. It then considers the European Monetary System's exchange-rate mechanism, and how the Maastricht criteria restored sheltered sector employers' bargaining strength. It also explains how inflation convergence synchronized price competitiveness among European Economic and Monetary Union (EMU) candidate countries, accounting for the lack of divergence in the EMU North and South's current account balances. It shows that monetary union removed two institutional constraints that enhanced employers' ability to uphold wage moderation, which in turn facilitated low-inflation governance in national labor markets across Europe: national-level, non-accommodating central banks and the Maastricht criteria.

Keywords:   monetary union, labor markets, tradables sector, nontradables sector, European Monetary System, Maastricht criteria, inflation, European Economic and Monetary Union, wage moderation, central banks

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