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Wage spillovers across sectors in Eastern Europe

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Listed author(s):
  • 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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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1122.pdf
File Function: First version, 2011
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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
Handle: RePEc:eec:wpaper:1122
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Keywords: Cointegrated VAR; wage setting; public sector;

Other versions of this item:

Find related papers by JEL classification:
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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