Are government wages interlinked with private sector wages?

Ana Lamo, Javier Pérez and Ludger Schuknecht

Journal of Policy Modeling, 2013, vol. 35, issue 5, 697-712

Abstract: The ongoing fiscal and financial crisis with significant macroeconomic imbalances in the euro area raises the question in how far public–private wage interaction and even wage spirals contribute to fiscal and competitiveness problems. In this vain we analyse empirically whether the evolution of public sector wages is decoupled from that of the private sector. Using data for number of OECD countries, we find: (i) a strong and extremely robust positive annual contemporaneous correlation of public and private sector wages over the business cycle; (ii) evidence of co-movement of these variables over the medium and long run. From a policy perspective, the findings of this study suggest public wage restraint and private wage flexibility coupled—where needed—with institutional reform to prevent or break public–private wage spirals.

Keywords: Government wages; Private sector wages; Co-movement (search for similar items in EconPapers)
JEL-codes: C32 E62 E63 H50 J30 J51 J52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:5:p:697-712

DOI: 10.1016/j.jpolmod.2012.12.003

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