Marzinotto, Β. & Turrini, Α. (2014) “Which factors shape the relationship between manufacturing and government wages?“, VoxEU Organisation, 05 Σεπτεμβρίου.
The link between public- and private-sector compensation has important implications for the labour market and price competitiveness. This column reports that manufacturing and government wages co-move both in the long and short run, but that the long-run co-movement is much stronger where the government is an important employer. This co-movement tends to break down during fiscal consolidation periods, except in large-government countries. Moreover, manufacturing wages exhibit a stronger co-movement with productivity in countries where government wages are set via collective bargaining.
During the crisis, numerous Eurozone countries have introduced public wage freezes or cuts as part of an attempt to contain rising fiscal deficits and debts. Some of these countries also had to rebalance their economies, and improve price competitiveness. The relevant question is therefore whether government wages, whilst relevant for fiscal outcomes, may also exert some impact on private-sector labour costs and price competitiveness.
There is an established literature looking at the potential for types of fiscal consolidation to have competitiveness-enhancing effects by reducing unit labour costs in the exposed sector (e.g. Alesina and Perotti 1997, Ardagna 2004). Another strand of research looks at the relationship between public and private wage-setting – notably whether there is merely co-movement, or instead wage leadership by one of the two sectors (e.g. Perez and Sanchez 2011, Lamo et al. 2012, 2013).
Two aspects seem generally neglected in the available literature. One is whether the size of the public sector matters. This is surprising because any market-driven transmission going from the public to the private sector is likely to be affected by size.
The other is whether the way in which government wages are set – through collective bargaining or government decision – also matters. Whilst fully unexplored, the wage-setting mode in the government sector is a crucial issue because it is an indication of the extent to which changes in government wages are mostly the result of fiscal policy decisions, or are rather part of the broader economy-wide wage-setting process.
Σχετικές αναρτήσεις:
- Wren-Lewis, S. (2014) “Real wages, monetary policy and innovation“, Mainly Macro Blog, 22 Ιουνίου.
- Janssen, R. (2014) “European Wage Depression Since 1999“, Social Europe Journal, 30 Μαΐου.
- Ozlem Onaran, Ο. & Stockhammer, Ε. (2014) “Why The Recovery Needs Wage Growth“, Social Europe Journal, 21 Μαΐου.