Empirical Economics

, Volume 41, Issue 2, pp 421–445 | Cite as

Is there a signalling role for public wages? Evidence for the euro area based on macro data

  • Javier J. Pérez
  • A. Jesús SánchezEmail author


Do public sector wages have an influence in the determination of private sector wages? This article tries to isolate the pure signalling effect that one sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and the periods 1980–2007 and 1991–2007. It exploits available quarterly information not yet used in the literature, and combines different data sources in the framework of mixed-frequencies time series models. The quarterly frequency of our data allows us to decompose the casual effects into purely intra-annual effects and across-years effects. Our conclusions establish the existence of purely intra-annual links between public and private sector wages (signalling effect). There is strong evidence of public wages’ leadership, either in conjunction with bi-directional links from the private sector (Spain, Italy) or pure public sector leadership (Germany and France in the sample 1991–2007). Our empirical approach allows us to also unveil a complex and rich structure of indirect links of wages with other variables (prices, productivity and institutional factors).


Government wages Private sector wages Signalling Causality Mixed frequency data Causal graph 

JEL Classification

C32 C53 J30 J51 J52 E62 E63 H50 H6 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Afonso A, Gomes P (2008) Interactions between private and public sector wages. European Central Bank Working Paper 971, NovemberGoogle Scholar
  2. Alesina A, Ardagna S, Perotti R, Schiantarelli F (2002) Fiscal policy, profits and investment. Am Econ Rev 92: 571–589CrossRefGoogle Scholar
  3. Algan Y, Cahuc P, Zylberberg A (2002) Public employment: does it increase unemployment. Econ Policy 34: 7–65CrossRefGoogle Scholar
  4. Ardagna S (2007) Fiscal policy in unionized labor markets. J Econ Dyn Control 31: 1498–1534CrossRefGoogle Scholar
  5. Conway P, Nicoletti G (2006) Product market regulation in the non-manufacturing sectors of OECD countries: measurement and highlights. OECD Economics Department Working Paper, No. 530Google Scholar
  6. Christou C, Klemm A, Tiffin A (2007) Wage Dynamics in the Romanian Economy. IMF Article IV, Selected Issues, pp 34–50Google Scholar
  7. Demekas DG, Kontolemis ZG (2000) Government employment and wages and labour market performance. Oxf Bull Econ Stat 62: 391–415CrossRefGoogle Scholar
  8. Demiralp S, Hoover KD (2003) Searching for the causal structure of a vector autoregression. Oxf Bull Econ Stat 65(Suppl.): 745–767CrossRefGoogle Scholar
  9. Dreher A, Gaston N, Martens P (2008) Measuring globalization–gauging its consequences. Springer, New YorkGoogle Scholar
  10. Eichler M (2007) Granger causality and path diagrams for multivariate time series. J Econom 137: 334–353CrossRefGoogle Scholar
  11. Feldstein MS (2008) Did wages reflect growth in productivity?. J Policy Model 30: 591–594CrossRefGoogle Scholar
  12. Freeman DG, Yerger DB (2000) Does inflation lower productivity? Time series evidence on the impact of inflation on labor productivity in 12 OECD nations. Atl Econ J 28: 315–332CrossRefGoogle Scholar
  13. Friberg K (2007) Intersectoral Wage linkages: the case of Sweden. Empir Econ 32: 161–184CrossRefGoogle Scholar
  14. Garrett I, Priestley R (2000) Dividend behavior and dividend signaling. J Financ Quant Anal 35: 173–189CrossRefGoogle Scholar
  15. Harvey A (1989) Forecasting Structural Time Series Models and the Kalman Filter. Cambridge University Press, UKGoogle Scholar
  16. Harvey A, Chung C (2000) Estimating the underlying change in unemployment in the UK. J R Stat Soc A 163: 303–339CrossRefGoogle Scholar
  17. Holmlund B, Ohlson H (1992) Wage linkages between private and public sectors in Sweden. Labour 6: 3–17CrossRefGoogle Scholar
  18. Jacobson T, Ohlsson H (1994) Long run relations between private and public sector wages in Sweden. Empir Econ 19: 343–360CrossRefGoogle Scholar
  19. Johansen K, Strom B (2003) Efficiency wages, wage comparison, and public sector budgeting. Econ Gov 4: 215–228CrossRefGoogle Scholar
  20. Kuhn P, Gu W (1999) Learning in sequential wage negotiations: theory and evidence. J Labor Econ 17(1): 109–140CrossRefGoogle Scholar
  21. Lamo A, Pérez JJ, Schuknecht L (2008) Public and private sector wages: co-movement and causality. European Central Bank Working Paper 963, NovemberGoogle Scholar
  22. Lange J, Sack B, Whitesell W (2003) Anticipations of monetary policy in financial markets. J Money Credit Bank 35(6, Part 1): 889–909CrossRefGoogle Scholar
  23. Lauritzen SL, Richardson TS (2002) Chain graph models and their causal interpretations. J R Stat Soc B (Stat Method) 64: 321–361CrossRefGoogle Scholar
  24. Lindquist J, Vilhelmsson R (2006) Is the Swedish central government a wage leader?. Appl Econ 38: 1617–1625CrossRefGoogle Scholar
  25. Maffezoli M (2001) Non-walrasian labor markets and real business cycles. Rev Econ Dyn 4: 860–892CrossRefGoogle Scholar
  26. Mizala A, Romaguera P (1995) Testing for wage leadership processes in the Chilean economy. Appl Econ 27: 303–310CrossRefGoogle Scholar
  27. Nickell W (2006) The CEP-OECD institutions data set (1960–2004). CEP Discussion Papers dp0759. Centre for Economic Performance, London School of EconomicsGoogle Scholar
  28. OECD (1997) Measuring public employment in OECD countries: sources, methods and results, ParisGoogle Scholar
  29. Pedregal D, Pérez JJ (2009) Should quarterly government finance statistics be used for fiscal surveillance in Europe? Int J Forecast. doi: 10.1016/j.ijforecast.2009.08.002
  30. Proietti T, Moauro F (2006) Dynamic factor analysis with non-linear temporal aggregation constraints. J R Stat Soc C, R Stat Soc 55: 281–300CrossRefGoogle Scholar
  31. Ram R (1984) Causal ordering across inflation and productivity growth in the post-war United States. Rev Econ Stat 66: 472–477CrossRefGoogle Scholar
  32. Strom B (1997) Envy, fairness and political influence in local government wage determination: evidence from Norway. Economica 62: 389–409CrossRefGoogle Scholar
  33. Tagtstrom S (2000) The wage spread between different sectors in Sweden. Sveriges Riskbank Econ Rev 4: 77–82Google Scholar
  34. Toda HY, Yamamoto T (1995) Statistical inference in vector autoregressions with possibly integrated processes. J Econom 66: 225–250CrossRefGoogle Scholar
  35. Tyler JH, Murnane RJ, Willett JB (2000) Estimating the labor market signaling value of the GED. Q J Econ 115: 431–468CrossRefGoogle Scholar
  36. Weiss A (1995) Human capital vs. signalling explanations of wages. J Econ Perspect 9: 133–154Google Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.MadridSpain
  2. 2.U. Pablo de Olavide Ctra.SevilleSpain

Personalised recommendations