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Wage spillovers across sectors in Eastern Europe


  • D'Adamo, Gaetano


This paper studies the interactions between wages in the public sector, the traded private sector and the sheltered private sector in ten EU Transition Countries and its relationship to international competitiveness during the decade 2000-2010. The theoretical literature on wage spillovers suggests 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.

Suggested Citation

  • D'Adamo, Gaetano, 2011. "Wage spillovers across sectors in Eastern Europe," MPRA Paper 27841, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27841

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    References listed on IDEAS

    1. Christoph Fischer, 2004. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(2), pages 179-210, June.
    2. Demekas, Dimitri G & Kontolemis, Zenon G, 2000. " Government Employment and Wages and Labour Market Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(3), pages 391-415, July.
    3. Jacobson, Tor & Ohlsson, Henry, 1994. "Long-Run Relations between Private and Public Sector Wages in Sweden," Empirical Economics, Springer, vol. 19(3), pages 343-360.
    4. Lamo, Ana & Schuknecht, Ludger & Pérez, Javier J., 2008. "Public and private sector wages: co-movement and causality," Working Paper Series 963, European Central Bank.
    5. Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 552-572, September.
    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    7. Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    8. Strom, Bjarne, 1995. "Envy, Fairness and Political Influence in Local Government Wage Determination: Evidence from Norway," Economica, London School of Economics and Political Science, vol. 62(247), pages 389-409, August.
    9. Vincenzo Quadrini & Antonella Trigari, 2008. "Public Employment and the Business Cycle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 723-742, March.
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    More about this item


    Cointegrated VAR; wage setting; public sector;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials


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