Wage Policies in Germany, France and Italy

Abstract

1) Introduction. For ease of exposition we assume that the monetary union consists of three countries, say Germany, France and Italy. The member countries are the same size and have the same behavioural functions. An increase in German nominal wages lowers German output. Correspondingly, an increase in French nominal wages lowers French output. And an increase in Italian nominal wages lowers Italian output. For ease of exposition we assume that wage policy in one of the countries has no effect on output in the other countries. In the numerical example, an increase in German nominal wages of 100 causes a decline in German output of 100. Correspondingly, an increase in French nominal wages of 100 causes a decline in French output of 100. And an increase in Italian nominal wages of 100 causes a decline in Italian output of 100. For ease of exposition we assume that the wage policy multiplier is 1. This assumption is consistent since the wage rate is defined in nominal terms while output is defined in real terms.