In a recent document OECD has suggested that the monetary union could bring about a convergence of wages’ level in Europe. Such a convergence could be rather harmful for some country’s competitiveness and for the conduct of monetary policy, unless it is fully matched by a consistent equalisation in the levels of labour productivity. This paper contributes to this debate by proving an evaluation of the actual magnitude of the dispersion of manufacturing wages across of Europe. Results suggest that from the early seventies labour costs in European manufacturing sectors have been converging; thus in the 1990 actual dispersion of labour costs is rather low. The equalisation of wages is entirely due to the reduction of the between countries component of wage dispersion that has been driven by the levelling off of the labour productivity among European countries. The sectoral component of dispersion did not decline because inter industry wage differentials are stable over time and similar across countries, as they reflect aggregations of workers with different level of skill. However EMU could play a role in reducing wages dispersion across Europe by fostering a change in the national wage bargaining system, leading to more egalitarian paradigma, and by reducing firms’ rents on product markets by increasing competition.
Published in 2001 in: Politica economica, v. 17, 1, pp. 97-125
