Public or Private Sector Wage Leadership? An International Perspective

17 Pages Posted: 28 Feb 2012  

Ana Lamo

European Central Bank (ECB)

Javier Gil Pérez

Instituto Universitario Gutiérrez Mellado

Ludger Schuknecht

European Central Bank (ECB)

Date Written: March 2012

Abstract

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.

Keywords: Government wages, private‐sector wages, wage leadership, causality

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

Suggested Citation

Lamo, Ana and Pérez, Javier Gil and Schuknecht, Ludger, Public or Private Sector Wage Leadership? An International Perspective (March 2012). The Scandinavian Journal of Economics, Vol. 114, Issue 1, pp. 228-244, 2012. Available at SSRN: https://ssrn.com/abstract=2012214 or http://dx.doi.org/10.1111/j.1467-9442.2011.01665.x

Ana Lamo (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Javier Gil Pérez

Instituto Universitario Gutiérrez Mellado ( email )

c/ Princesa nº 36
Madrid, 28008
Spain

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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