Empirical Economics

, Volume 47, Issue 2, pp 523–552 | Cite as

Wage spillovers across sectors in Eastern Europe

Article

Abstract

This paper studies the interactions between wages in the public sector and the private traded and non-traded sector in ten transition countries which are members of the European Union, during the period 2000–2011. The theoretical literature on wage spillovers, as well as the Balassa–Samuelson hypothesis, 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. 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.

Keywords

Cointegrated VAR Wage setting Wage leadership  Public sector 

JEL Classification

C32 E62 J31 

References

  1. Ardagna S (2007) Fiscal Policy in unionized labor markets. J Econ Dyn Control 31:1498–1534CrossRefGoogle Scholar
  2. Aukrust O (1970) PRIM I: A model of the price income distribution mechanism of an open economy. Rev Income Wealth 16(1):51–78CrossRefGoogle Scholar
  3. Aukrust O (1977) Inflation in the open economy: a Norwegian Model. Artikler no.96, Statistisk Sentralbyra, OsloGoogle Scholar
  4. Balassa B (1964) The purchasing-power parity doctrine: a reappraisal. J Polit Econ 72(6):584–596CrossRefGoogle Scholar
  5. Bemmels BG, Zaidi MA (1990) Wage leadership in Canadian industry. Appl Econ 22(4):553–567CrossRefGoogle Scholar
  6. Calmfors L, Driffill J (1988) Bargaining structure, corporatism, and macroeconomic performance. Econ Pol 3(6):13–61CrossRefGoogle Scholar
  7. Coricelli F, Jazbec B (2004) Real exchange rate dynamics in transition economies. Struct Change Econ Dyn 15:83–100CrossRefGoogle Scholar
  8. Demekas DG, Kontolemis ZG (2000) Government employment and wages and labour market performance. Oxf B Econ Stat 62(3):391–415CrossRefGoogle Scholar
  9. Drine I, Égert B, Lommatzsch K, Rault C (2003) The Balassa–Samuelson effect in Central and Eastern Europe: myth or reality? J Comp Econ 31(3):552–572CrossRefGoogle Scholar
  10. Égert B (2003) Nominal and real convergence in Estonia: the Balassa–Samuelson (dis)connection. William Davidson Institute Working Paper Series 556Google Scholar
  11. Égert B (2007) Real convergence, Price level convergence and Inflation in Europe. Bruegel working paper no. 2007/2Google Scholar
  12. Elliott G, Rothenberg TJ, Stock JH (1996) Efficient tests for an autoregressive unit root. Econometrica 64(4):813–836CrossRefGoogle Scholar
  13. Friberg K (2007) Intersectoral wage linkages: the case of Sweden. Empir Econ 32:161–184CrossRefGoogle Scholar
  14. Froot K, Rogoff K (1995) Perspectives on PPP and Long-run real exchange rates. In: Grossman G, Rogoff K (eds) Handbook of international economics, 3rd edn. Elsevier, AmsterdamGoogle Scholar
  15. Golinelli R, Orsi R (2002) Modelling inflation in EU accession countries: The case of the Czech Republic, Hungary and Poland. Eastward Enlargement of the Euro-zone Working Papers, Free University Berlin, Jean Monnet Centre of ExcellenceGoogle Scholar
  16. Granger CWJ (1969) Investigating causal relations by econometric models and cross-spectral methods. Econometrica 37:424–438CrossRefGoogle Scholar
  17. Halpern L, Wyplosz C (2001) Economic transformation and real exchange rates in the 2000s: the Balassa–Samuelson connection. UNECE discussion paper no. 2001.1Google 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 S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12:231–254CrossRefGoogle Scholar
  20. Johansen S (2002) A small sample correction for the test of cointegrating rank in the vector autoregressive model. Econometrica 70(5):1929–1961CrossRefGoogle Scholar
  21. Juselius K (2006) The cointegrated VAR model: methodology and application. Oxford University Press, OxfordGoogle Scholar
  22. Klau M, Mihaljek D (2004) The Balassa–Samuelson effect in central Europe: a disaggregated analysis. Comp Econ Stud 46:63–94CrossRefGoogle Scholar
  23. Klyviene V, Rasmussen LT (2010) Causes of financial crisis: the case of Latvia. Ekonomika 89(2):7–27Google Scholar
  24. Lamo A, Perez JJ, Schuknecht L (2008) Public and private sector wages: comovement and casuality. ECB working paper no. 963Google Scholar
  25. Lamo A, Perez JJ, Schuknecht L (2012) Public or private sector wage leadership? An international perspective. Scand J Econ 114(1):228–244CrossRefGoogle Scholar
  26. Lamo A, Perez JJ, Schuknecht L (2013) Are government wages interlinked with private sector wages? J Policy Model. doi:10.1016/j.jpolmod.2012.12.003
  27. Lindquist M, Vilhelmsson R (2006) Is the Swedish central government a wage leader? Appl Econ 38(14):1617–1625CrossRefGoogle Scholar
  28. Mizala A, Romaguera P (1995) Testing for wage leadership processes in the Chilean economy. Appl Econ 27(3):303–310CrossRefGoogle Scholar
  29. Perez JJ, Sanchez J (2011) Is there a signalling role for public wages? Evidence from the euro area based on macro data. Empir Econ 41:421–445CrossRefGoogle Scholar
  30. Quadrini V, Trigari A (2007) Public employment and the business cycle. Scand J Econ 109(4):723–742 CrossRefGoogle Scholar
  31. Samuelson PA (1964) Theoretical notes on trade problems. Rev Econ Stat 46(2):145–154CrossRefGoogle Scholar
  32. Tagtstrom S (2000) The wage spread between different sectors in Sweden. Sveriges Riksbank, Economic Review 4/2000Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Department of Applied Economics IIUniversity of ValenciaValenciaSpain

Personalised recommendations