Wage developments in Euroland or: the Failure of the Macroeconomic Dialogue

Abstract

European monetary union is unique. Monetary policy is centralised at the supranational level, but many other policies with macroeconomic impact remain at the national level. Because price stability is driven by unit labour costs, wage bargaining has become Europeanized with the creation of the euro. While the experience of the last 10 years has shown that wage bargaining on aggregate has supported monetary policy, national wage settlements have diverged and there is only very weak evidence of convergence to the euro average. The reasons are found in insufficient consideration of the euro-wide macroeconomic environment in national wage bargaining and the absence of European-wide public debates on wage setting. This poses the problem of how to remedy the situation. Classical indicators of labour market flexibility do not seem to be relevant. The Macroeconomic Dialogue was instituted to facilitate macroeconomic stability. It has failed, largely because of its confidential nature, which prevents the emergence of European-wide policy deliberation. It is suggested that the MED should be transferred from the Council to the European Parliament.download