GEP 10/15: Exchange rates and wages in unionised labour markets

Summary

This paper examines – theoretically and empirically – the effect of exchange rate movements on wage determination in unionised labour markets.

Abstract

We investigate the impact of exchange rate movements on wage determination in unionised labour markets. Using a simple model of international oligopoly, we show that organised labour has a rational incentive to accept lower wages in the face of a currency appreciation. This proposition is examined empirically using a matched worker-firm dataset for Portugal. We find results consistent with the predictions of the model, though the impact varies considerably with both worker characteristics and the regional unemployment rate.

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Authors

Paulo Bastos and Peter Wright

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