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Right arrow E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution
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Oxf Rev Econ Policy 1998; 14:125-151
© 1998 Oxford University Press and Oxford Review of Economic Policy Ltd

Article

Macroeconomic policy, wage setting, and employment - what difference does the EMU make?

L Calmfors
Institute for International Economic Studies, Stockholm University, Sweden

Abstract

The likely impact of the EMU on the variability and level of employment is analysed. The major conclusions are as follows. (i) Although an inflation-target regime will constrain monetary policy of a non-participant in the EMU, it still leaves considerable scope for exchange-rate changes in the case of country-specific demand shocks, provided that there is some nominal price and wage flexibility. (ii) Variations in payroll taxes can be used as a substitute for exchange-rate changes in the EMU, but it will be an imperfect substitute. (iii) Money-wage flexibility is likely to be larger inside than outside the EMU, but probably not by much. (iv) There are various mechanisms through which the EMU may affect the incentives for labour-market reform to reduce equilibrium unemployment, but the net impact is highly uncertain.


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 Work and OccupationsHome page
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