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Public wages in the euro area - towards securing stability and competitiveness

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  • Holm-Hadulla, Fédéric
  • Kamath, Kishore
  • Lamo, Ana
  • Pérez, Javier J.
  • Schuknecht, Ludger

Abstract

This paper examines the role of government wages in ensuring macroeconomic stability and competitiveness in the euro area. Recent empirical evidence suggests that government wage expenditure is subject to a pro-cyclical bias in most euro area countries and at the euro area aggregate level. Moreover, the evidence points to a strong positive correlation and co-movement between public and private wages in the short to medium term, both directly and indirectly via the price level, in most euro area countries. In a number of countries this interrelation between public and private wages coincided with strong public wage growth and competitiveness losses. These findings underpin the need for prudent public wage policies supported by strong domestic fiscal frameworks and appropriate wage-setting institutions in order to enhance economic stability and competitiveness in Economic and Monetary Union. JEL Classification: E22, E50

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Bibliographic Info

Paper provided by European Central Bank in its series Occasional Paper Series with number 112.

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Date of creation: Jun 2010
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Handle: RePEc:ecb:ecbops:20100112

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Keywords: competitiveness; fiscal cyclicality; government wage expenditure;

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References

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  1. Matthieu Bussière & Emilia Pérez‐Barreiro & Roland Straub & Daria Taglioni, 2011. "Protectionist Responses to the Crisis: Global Trends and Implications," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 34, pages 826-852, 05.
  2. Vergote, Olivier & Studener, Werner & Efthymiadis, Ioannis & Merriman, Niall, 2010. "Main drivers of the ECB financial accounts and ECB financial strength over the first 11 years," Occasional Paper Series, European Central Bank 111, European Central Bank.
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Cited by:
  1. Fernàndez-de-Córdoba, Gonzalo & Pérez, Javier J. & Torres, José L., 2009. "Public and private sector wages interactions in a general equilibrium model," Working Paper Series, European Central Bank 1099, European Central Bank.
  2. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2013. "Are government wages interlinked with private sector wages?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(5), pages 697-712.
  3. Task Force of the Monetary Policy Committee of the ESCB, 2010. "Energy markets and the euro area macroeconomy," Occasional Paper Series, European Central Bank 113, European Central Bank.
  4. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos & Vanghelis Vassilatos, 2013. "Smaller Public Sectors in the Euro Area: Aggregate and Distributional Implications," CESifo Economic Studies, CESifo, CESifo, vol. 59(3), pages 536-558, September.
  5. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States," Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank, Research Centre 2010,13, Deutsche Bundesbank, Research Centre.
  6. Agustín S. Bénétrix, 2009. "Fiscal Shocks and The Real Exchange Rate," 2009 Meeting Papers, Society for Economic Dynamics 1137, Society for Economic Dynamics.
  7. A team of the Working Group on Econometric Modelling of the European System of Central Banks, 2012. "Competitiveness and external imbalances within the euro area," Occasional Paper Series, European Central Bank 139, European Central Bank.
  8. Sotiris Theodoropoulos, 2012. "Seeking a sustainable size and structure for the Greek public sector’s activities according to the fiscal pact for Euro," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 62(3-4), pages 75-92, July - De.
  9. An IRC expert group of the ESCB, 2010. "Financial stability challenges in EU candidate countries - Financial systems in the aftermath of the global crisis," Occasional Paper Series, European Central Bank 115, European Central Bank.
  10. Gardó, Sándor & Martin, Reiner, 2010. "The impact of the global economic and financial crisis on central, eastern and south-eastern Europe: A stock-taking exercise," Occasional Paper Series, European Central Bank 114, European Central Bank.
  11. Maczulskij, Terhi, 2013. "Public–private sector wage differentials and the business cycle," Economic Systems, Elsevier, Elsevier, vol. 37(2), pages 284-301.
  12. Beirne, John & Dalitz, Lars & Ejsing, Jacob & Grothe, Magdalena & Manganelli, Simone & Monar, Fernando & Sahel, Benjamin & Sušec, Matjaž & Tapking, Jens & Vong, Tana, 2011. "The impact of the Eurosystem's covered bond purchase programme on the primary and secondary markets," Occasional Paper Series, European Central Bank 122, European Central Bank.
  13. Giordano, Raffaela & Depalo, Domenico & Coutinho Pereira, Manuel & Eugène, Bruno & Papapetrou, Evangelia & Pérez, Javier J. & Reiss, Lukas & Roter, Mojca, 2011. "The public sector pay gap in a selection of Euro area countries," Working Paper Series, European Central Bank 1406, European Central Bank.
  14. di Mauro, Filippo & Forster, Katrin & Lima, Ana, 2010. "The global downturn and its impact on euro area exports and competitiveness," Occasional Paper Series, European Central Bank 119, European Central Bank.
  15. Bodea, Cristina & Huemer, Stefan, 2010. "Dancing together at arm’s length? – The interaction of central banks with governments in the G7," Occasional Paper Series, European Central Bank 120, European Central Bank.
  16. Hess, Patrick, 2010. "Securities clearing and settlement in China: markets, infrastructures and policy-making," Occasional Paper Series, European Central Bank 116, European Central Bank.
  17. Sturm, Michael & Sauter, Nicolas, 2010. "The impact of the global financial turmoil and recession on Mediterranean countries’ economies," Occasional Paper Series, European Central Bank 118, European Central Bank.

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