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Abstract

Why did the transnational synchronization of wage inflations fail during the first 10 years of
the euro? We analyze data from 1999 to 2008 for 12 euro members and estimate increases
of nominal unit labor costs both in the overall economy and in manufacturing as dependent
variables. While our analysis confirms that differences in economic growth shaped the
inflation of labor costs, we add a political-institutional argument to the debate and argue
that the designs of the wage regimes had an additional, independent impact. In coordinated
labor regimes, increases in nominal unit labor costs tended to fall below the European
Central Bank’s inflation target, while in uncoordinated labor regimes, the respective
increases tended to exceed the European inflation target. Due to the stickiness of wagebargaining
institutions, the lack of the capacity to synchronize inflation is not likely to
disappear in the foreseeable future.