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

Gaetano D’Adamo (), Mariam Camarero and Cecilio Tamarit
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Gaetano D’Adamo: Department of Applied Economics II, University of Valencia
Authors registered in the RePEc Author Service: Gaetano D'Adamo ()

No 1317, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: 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.

Keywords: Wage Leadership; Cointegrated VAR; Labor Market (search for similar items in EconPapers)
JEL-codes: C32 E62 J51 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-07
New Economics Papers: this item is included in nep-eec, nep-eur, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Wage leadership models: A country-by-country analysis of the EMU (2014)
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