Public wages in the euro area - towards securing stability and competitiveness

Fédéric Holm-Hadulla, Kishore Kamath, Ana Lamo, Javier Pérez and Ludger Schuknecht

No 112, Occasional Paper Series from European Central Bank

Abstract: This paper examines the role of government wages in ensuring macroeconomic stability and competitiveness in the euro area. Recent empirical evidence suggests that government wage expenditure is subject to a pro-cyclical bias in most euro area countries and at the euro area aggregate level. Moreover, the evidence points to a strong positive correlation and co-movement between public and private wages in the short to medium term, both directly and indirectly via the price level, in most euro area countries. In a number of countries this interrelation between public and private wages coincided with strong public wage growth and competitiveness losses. These findings underpin the need for prudent public wage policies supported by strong domestic fiscal frameworks and appropriate wage-setting institutions in order to enhance economic stability and competitiveness in Economic and Monetary Union. JEL Classification: E22, E50

Keywords: competitiveness; fiscal cyclicality; government wage expenditure (search for similar items in EconPapers)
Date: 2010-06
Note: 1624014
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Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2010112

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