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Wage spillovers across sectors in Eastern Europe

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  • Gaetano D’Adamo

    (Department of Economic Structure, University of Valencia, Spain)

Abstract

This paper studies the interactions between wages in the public sector, the traded private sector and the closed sector in ten EU Transition Countries during the period 2000-2010. The theoretical literature on wage spillovers, as well as the Balassa-Samuelson hypothesis, suggest that the internationally traded sector should be the leader in wage setting, with sheltered and public sector wages adjusting. Using a Cointegrated VAR approach we show that a large heterogeneity across countries is present, and non-traded and public sector wages are often leaders in wage determination or at least affect traded sector wages in the short run. In some countries, public sector wages are weakly exogenous, with the private sectors adjusting. This result is relevant from a policy perspective since wage spillovers, leading to costs growing faster than productivity, may affect the international cost competitiveness of the traded sector and thus the catching-up process may be accompanied by accumulation of large international imbalances.

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Bibliographic Info

Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1122.

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Length: 25 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:eec:wpaper:1122

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Keywords: Cointegrated VAR; wage setting; public sector;

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References

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  1. Laszlo Halpern & Charles Wyplosz, 2001. "Economic Transformation and Real Exchange Rates in the 2000s: The Balassa-Samuelson Connection," ECE Discussion Papers Series 2001_1, UNECE.
  2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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  7. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2005. "The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?," Documents de recherche 05-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  8. Fischer, Christoph, 2002. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," Discussion Paper Series 1: Economic Studies 2002,19, Deutsche Bundesbank, Research Centre.
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  12. Nikolay Nenovsky & Kalina Dimitrova, 2002. "Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession," William Davidson Institute Working Papers Series 487, William Davidson Institute at the University of Michigan.
  13. Albert Ma, Ching-to & Weiss, Andrew M., 1993. "A signaling theory of unemployment," European Economic Review, Elsevier, vol. 37(1), pages 135-157, January.
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  15. Oswald, Andrew J, 1979. "Wage Determination in an Economy with Many Trade Unions," Oxford Economic Papers, Oxford University Press, vol. 31(3), pages 369-85, November.
  16. Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
  17. Coricelli, Fabrizio & Jazbec, Bostjan, 2001. "Real Exchange Rate Dynamics in Transition Economies," CEPR Discussion Papers 2869, C.E.P.R. Discussion Papers.
  18. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
  19. R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
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