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Wage spillovers across sectors in Eastern Europe

  • D'Adamo, Gaetano
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    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.

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    File URL: http://mpra.ub.uni-muenchen.de/27841/1/MPRA_paper_27841.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27841.

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    Date of creation: 03 Jan 2011
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    Handle: RePEc:pra:mprapa:27841
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    1. Zenon Kontolemis G. & Dimitri G. Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 99/55, International Monetary Fund.
    2. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2008. "Public and private sector wages: co-movement and causality," Working Paper Series 0963, European Central Bank.
    3. Jacobson, Tor & Ohlsson, Henry, 1994. "Long-Run Relations between Private and Public Sector Wages in Sweden," Empirical Economics, Springer, vol. 19(3), pages 343-60.
    4. 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.
    5. 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.
    6. Balázs �gert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    7. Vincenzo Quadrini & Antonella Trigari, 2008. "Public Employment and the Business Cycle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 723-742, 03.
    8. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
    9. 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.
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