Does price stability exacerbate labour market rigidities in the EMU?

Arbeitspapier

How will the commitment to price stability affect labour market rigidities in the European Monetary Union? I explore a model where firms choose between fixed wage contracts (where the employer cannot lay off the worker, and the wage can only be changed by mutual consent), or contracts where employment is at will, so that either party may terminate employment (with strong similarities to temporary jobs). A fixed wage contract provides better incentives for investment and training, while employment at will facilitates efficient mobility. Inflation erodes the real value of a fixed contract wage over time, and badly matched workers are more likely to quit for other jobs. Disinflation has opposing effects on labour market rigidity: fixed wage contracts become more rigid in real terms, but fewer firms will choose fixed wage contracts.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Memorandum ; No. 2001,10

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Labor Law
• Subject: Nominal wage rigidity ; inflation ; employment contracts ; training ; EMU ; Preisniveaustabilität ; Lohnrigidität ; Wirkungsanalyse ; Arbeitsmarktflexibilisierung ; Europäische Wirtschafts- und Währungsunion ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Holden, Steinar
• Event: Veröffentlichung
• (who): University of Oslo, Department of Economics
• (where): Oslo
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/62948
• Last update: 10.03.2025, 11:43 AM CET