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This article estimates the equilibrium wage equation for the Eurozone over the period 1995–2011 using panel cointegration techniques that allow for cross‐section dependence and structural breaks. As expected, the results show that wages have a positive relationship with productivity and a negative relationship with unemployment. The authors also include institutional variables, showing that more flexible labour markets are consistent with wage moderation. They find that, since 2004, increased international competition has made wage determination more strictly related to productivity, and that real exchange rate appreciation triggers a drop in wages. Their results also indicate that government intervention and wage bargaining concertation have a wage‐moderating role.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu One general result is that B-S can at best explain only part of the excess inflation observed in the European catching-up countries, which suggests that other factors may be at play. In these and related studies, however, the potential role of the exchange rate regime in affecting price convergence in Europe has been overlooked. In this respect, we claim that the choice of the exchange rate regime has decisively affected the path of nominal convergence. To show this, we first model the (endogenous) choice of the exchange rate regime and, in a second stage, estimate a B-S type of regression for each regime. Our results show that, for countries which pegged to or adopted the euro, the effect of the same increase in the dual productivity growth (that is, the difference in productivity growth between the traded and nontraded sectors) on the dual inflation differential is more than twice as large as that in the "flexible" countries. We conclude that, in a catching-up country, premature euro adoption may foster excess inflation, beyond that which is to be expected as a consequence of productivity convergence on the basis of the B-S effect. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SJEL Classification: C34, E52, F31

This paper studies the interactions between wages in the public sector, the traded private sector and the sheltered private sector in ten EU Transition Countries and its relationship to international competitiveness during the decade 2000-2010. The theoretical literature on wage spillovers suggests that the internationally traded sector should be the leader in wage setting, with sheltered and public sector (the non-traded sector) wages adjusting. Using a Cointegrated VAR approach we show that a large heterogeneity across countries is present, with non-traded sectors wages often being leaders in wage determination or at least affecting traded sector wages in the short run. In some countries, public sector wages are weakly exogenous, with the private sectors adjusting. This result is relevant from a policy perspective since wage spillovers, leading to costs growing faster than productivity, may affect the international cost competitiveness of the traded sector. IntroductionThe aim of this paper is to study the interactions and spillovers between wages in different sectors. In particular, we analyze the interplay in wage determination in three broad sectors: the open (internationally traded) sector, the closed or "sheltered sector", which can also be called the market non-traded sector, and the public sector, also called the non-market non-traded sector. The focus of this work is on Central and Eastern European Countries (CEEC) that have recently joined the European Union. This issue is relevant for several reasons. First, public sector employment is large and relevant: in the OECD, around 25% of the work force is employed in the public sector. Second, wage spillovers across sectors may lead to wage costs growing faster than productivity and this may affect the international cost competitiveness of the country's tradable sectors. In particular, theoretical models generally assume that the traded sector is leader in wage determination and there is mobility of labour across sectors which, in turn, ensures wage equalization. This is assumed, for example, by Froot and Rogoff [1995] and the so-called Scandinavian Model of wage determination (Aukrust [1970], see Section 3). If these models hold, during the process of catching-up excess inflation will be witnessed and the real exchange rate will appreciate, but, on the other hand, only wages in the non-traded sector should grow faster than productivity and therefore competitiveness should not be harmed. However, it can also happen that wage bargaining in the non-traded sector -which is not subject to international competition -and in the public sectorwhich is influenced by political rather than productivity considerations -may lead to higher outcomes and, in turn, push traded sector wages up. Testing wage leadership in the case of transition countries is important because they are in the process of catching up: entry in the EU, which also fostered international labour mobility, is likely to have influenced wage determination in these countries, and it is possible...