Neo-classical and new-keynesian economics a like have in common to explain involuntary unemployment as the result of real wage rigidity. The neo-classical analysis also postulatesa positive correlation between nominal and real wages (generally confirmed by empirical observations) so that any cutin money wages should result inacutinreal wages. As a consequence, money wage rigidities as sociated with some specific bargaining arrangements on the labour market would be responsible for involuntary unemployment.
Starting with the work of Bils (1985), most longitudinal micro panel studies of cyclical wage behavior have established strong procyclicality in the U.S. (for example, Solon et al., 1994; Shin, 1994) and the U.K.(Hart 2006; Devereux and Hart, 2006). It has also been found that wage procyclicality among job movers exceeds that of stayers.
However, these national wage pictures are less than complete since they fail to integrate the quantitatively important role of part-time work. Individuals working part-time, and especially female workers, comprise significant percentages of total employment. Take as an example the year 2001, the last year of the present study. OECD (2004) reports that 15 European Union member countries averaged 30 percent part-time to total employed women (5.9 percent of part-time to total men) while the respective percentages for the U.S. and Canada were 18.0 (8.0) and 27.1 (10.4). Among the highest rates of female part-time employment was the U.K., with comparable figures of 40.3 (8.3).
European countries have progressively integrated from the point of view of trade and investment and have a common currency now. Labour market and fiscal institutions have largely retained their national status until now, but changes are on the way. On one side, European unions have committed themselves to the aim of achieving increased employment and purchasing power through cross-border co-ordination of bargaining policy (see the Doorn declaration of September 1998).
On the other side, the Lisboa European Council (March 2000) for the first time has indicated common targets in terms of growth and employment. This, while allowing for co-operation of fiscal authorities respectful of the Growth and Stability Pact, raises the question of a possible conflict with the pre-eminent objective of the European Central Bank, i.e., price stability.
