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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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Sheltered Sector Dominance under a Common Currency

Sheltered Sector Dominance under a Common Currency

Irrational Exuberance in Ireland and Fragmentation in Spain

(p.137) 6 Sheltered Sector Dominance under a Common Currency
From Convergence to Crisis

Alison Johnston

Cornell University Press

This chapter examines the political and institutional features of wage-setting regimes that favor sheltered sector interests in European Economic and Monetary Union (EMU) countries. Using a most-different case comparison of Ireland and Spain, it considers why both countries suffered similar declines in real exchange rate competitiveness after entering the EMU despite having different institutional, political, and economic characteristics. The chapter first discusses the monetary transition of Ireland and Spain in greater detail before comparing their commitments to the European Monetary System. It then looks at bargaining fragmentation in Spain and wage inflation in Ireland's sheltered sector and goes on to show that both countries suffered a similar fate after 1999 due to the absence of a strong export-sector check on collective bargaining that could deliver encompassing wage moderation.

Keywords:   wage-setting, sheltered sector, European Economic and Monetary Union, Ireland, Spain, real exchange rate, European Monetary System, wage inflation, collective bargaining, wage moderation

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