
Contents
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A Tale of Two Sectors: Assumptions and Theoretical Foundations A Tale of Two Sectors: Assumptions and Theoretical Foundations
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Convenient Institutional Constraints: The European Monetary System’s Exchange Rate Mechanism Convenient Institutional Constraints: The European Monetary System’s Exchange Rate Mechanism
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EMU Conditionality and Maastricht: New Constraints on the Sheltered Sector EMU Conditionality and Maastricht: New Constraints on the Sheltered Sector
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EMU’s Macroeconomic Governance Vacuum: Sheltered Sector Employers on the Defensive EMU’s Macroeconomic Governance Vacuum: Sheltered Sector Employers on the Defensive
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Promoting a Corporatist Comparative Advantage: EMU’s Favoritism Toward Low-Inflation Labor Markets Promoting a Corporatist Comparative Advantage: EMU’s Favoritism Toward Low-Inflation Labor Markets
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2 From Order to Disorder: How Monetary Union Changed National Labor Markets
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Published:May 2016
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Abstract
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.
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