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Wage leadership models: a country-by-country analysis of the EMU

  • Gaetano D’Adamo

    ()

    (Department of Applied Economics II, University of Valencia)

  • Mariam Camarero

    ()

    (Department of Economics, Universidad Jaume I)

  • Cecilio Tamarit

    ()

    (Department of Applied Economics II, University of Valencia)

According to the theory of wage leadership, if there is free inter-sectorial labor mobility, changes in the level of the wage in the leading sector cause changes in the same direction in other sectors’ wage. Moreover, since the traded sector (i.e. Industry) is affected by international competitive pressure, it should act as the leader, because this would be conducive to wage restraint. We apply a Vector Error Correction Model on four macro sectors (Industry, Services, Construction and the Public Sector) in ten EMU countries to test for wage leadership and wage adaptability. Our results show significant cross-country differences, with the Public Sector acting as the leader in Germany, Belgium and Greece. Countries that recently experienced a construction bubble such as Spain and Ireland show wage leadership of the construction sector. Moreover, in half of the countries, wages in different sectors are, to some extent, set autonomously, which suggests low intersectorial labor mobility. Finally, adjustment after a positive vs. negative shock to the leading sector’s wage, in Mediterranean countries, Ireland and the Netherlands is asymmetric.

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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1317.pdf
File Function: First version, 2013
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Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1317.

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Length: 29 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:eec:wpaper:1317
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