Public and Private Sector Wages: Co-Movement and Causality

69 Pages Posted: 19 Nov 2008

See all articles by Ana Lamo

Ana Lamo

European Central Bank (ECB)

Javier J. Pérez

Banco de España - Research Department

Ludger Schuknecht

European Central Bank (ECB)

Date Written: November 13, 2008

Abstract

This paper looks at public and private sector wages interactions since the 1960s in the euro area, euro area countries and a number of other OECD countries. The paper reports, first, a strong positive annual contemporaneous correlation of public and private sector wages over the business cycle; this finding is robust across methods and measures of wages and quite general across countries. Second, we show evidence of long-run relationships between public and private sector wages in all countries. Finally, causality analysis suggests that feedback effects between private and public wages occur in a direct manner and, importantly also via prices. While influences from the private sector appear on the whole to be stronger, there are direct and indirect feedback effects from public wage setting in a number of countries as well. We show how country-specific institutional features of labour and product markets contain helpful information to explain the heterogeneity across countries of our results on public/private wage leadership.

Keywords: government wages, private sector wages, causality, co-movement

JEL Classification: C32, J30, J51, J52, E62, E63, H50

Suggested Citation

Lamo, Ana and Perez, Javier J. and Schuknecht, Ludger, Public and Private Sector Wages: Co-Movement and Causality (November 13, 2008). ECB Working Paper No. 963, Available at SSRN: https://ssrn.com/abstract=1291172 or http://dx.doi.org/10.2139/ssrn.1291172

Ana Lamo (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Javier J. Perez

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

HOME PAGE: http://www.bde.es/investigador/staff/95.htm

Ludger Schuknecht

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

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