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Interactions between Private and Public Sector Wages

Author

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  • Afonso, António

    (European Central Bank)

  • Gomes, Pedro Maia

    (Birkbeck, University of London)

Abstract

We examine the interactions between public and private sector wages per employee in OECD countries. The growth of public sector wages and of public sector employment positively affects the growth of private sector wages. Moreover, total factor productivity, the unemployment rate and the degree of urbanisation are also important determinants of private sector wage growth. With respect to public sector wage growth, we find that it is influenced by fiscal conditions in addition to private sector wages. We then set up a dynamic labour market equilibrium model with two sectors, search and matching frictions and exogenous growth to understand the interaction mechanisms. The model is quantitative consistent with the main estimation findings.

Suggested Citation

  • Afonso, António & Gomes, Pedro Maia, 2010. "Interactions between Private and Public Sector Wages," IZA Discussion Papers 5322, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5322
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    References listed on IDEAS

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    More about this item

    Keywords

    employment; private sector wages; public sector wages; fiscal policy;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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