Wage Bargaining Structure, Employment and Economic Integration

It is widely believed that the integration of European economies will have little impact on labour mobility. This does not mean, however, that European labour markets will be unaffected by the process of economic integration. In this paper we show that with increased competition from closer economic integration, the hump-shaped pattern summarizing the relationship between economic performance and the degree of centralization in wage bargaining (Calmfors and Driffill, 1988) flattens out. As a consequence, the importance of the position of a particular economy on the wage-bargaining scale diminishes. We find, however, that the post-integration wage-price structure is closer to the configuration familiar to decentralized economies. It can be inferred that the adjustment to the new environment could be more difficult for economies characterized by centralized wage bargaining.