Wage moderation in the European Union: Experiments with the multi-country model EUROMON

The paper has been presented by the author at the Clingendael/DNB workshop 'The Netherlands' Polder model: does it offer any clues for the solution of Europe's socioeconomic flaws' (June 4th 1999). On the basis of a set of simulations with the Bank's multi-country model the paper discusses whether wage moderation is a suitable remedy to tackle the unemployment problem in the European Union. The main findings are that individual countries may benefit from a restrained wage policy. This holds for small open economies like The Netherlands as well as for larger economies like Germany and France. Nominal wage moderation at a European scale, however, seems to be less effective, although some improvement in economic and labour market conditions turn up in the longer run.