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Are government wages interlinked with private sector wages?

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  • Lamo, Ana
  • Pérez, Javier J.
  • Schuknecht, Ludger

Abstract

The ongoing fiscal and financial crisis with significant macroeconomic imbalances in the euro area raises the question in how far public–private wage interaction and even wage spirals contribute to fiscal and competitiveness problems. In this vain we analyse empirically whether the evolution of public sector wages is decoupled from that of the private sector. Using data for number of OECD countries, we find: (i) a strong and extremely robust positive annual contemporaneous correlation of public and private sector wages over the business cycle; (ii) evidence of co-movement of these variables over the medium and long run. From a policy perspective, the findings of this study suggest public wage restraint and private wage flexibility coupled—where needed—with institutional reform to prevent or break public–private wage spirals.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 35 (2013)
Issue (Month): 5 ()
Pages: 697-712

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Handle: RePEc:eee:jpolmo:v:35:y:2013:i:5:p:697-712

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Government wages; Private sector wages; Co-movement;

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References

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Cited by:
  1. Gaetano D’Adamo & Mariam Camarero & Cecilio Tamarit, 2013. "Wage leadership models: a country-by-country analysis of the EMU," Working Papers 1317, Department of Applied Economics II, Universidad de Valencia.
  2. Annette Zeilstra & Adam Elbourne, 2014. "Follow the leader? Public and private wages in the Netherlands," CPB Discussion Paper 274, CPB Netherlands Bureau for Economic Policy Analysis.

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