Public sector wage premium and output volatility in the European Union
Abstract
This study seeks to uncover the role played by the public sector wage premium in explaining the output volatility. Furthermore, the study also explores the factors that might substantiate the cross-country differences in the volatility of the public sector wage premium. Using cross-sectional regression analysis for the European Union countries, the findings indicate that more volatile public sector wage premium is associated with higher fluctuations in the private sector employment and less stable growth. Findings also suggest that volatility of the public sector wage premium tends to be larger in countries with smaller governments and in countries where collective bargaining is the predominant regime for public sector wage setting.
Keyword : macroeconomic stability, output volatility, public sector wages, public sector wage premium, public sector wage setting
How to Cite
Vilerts, K. (2018). Public sector wage premium and output volatility in the European Union. Business, Management and Economics Engineering, 16, 160-173. https://doi.org/10.3846/bme.2018.2145
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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World Bank. (n.d.). Retrieved from https://data.worldbank.org/indicator
Afonso, A., & Gomes, P. (2008). Interactions between private and public sector wages. ECB Working Paper No. 971. Retrieved from https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp971.pdf?8f9d6a8ad5e9012e61231badcea948b2
AMECO. (n.d.). Retrieved from http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
Alesina, A., Ardagna, S., Perotti, R., & Schiantarelli, F. (2002). Fiscal policy, profits, and investment. American Economic Review, 92(3), 571-589. https://doi.org/10.1257/00028280260136255
Algan, Y., Cahuc, P., & Zylberberg, A. (2002). Public employment and labour market performance. Economic Policy, 17(34), 7-66. Retrieved from http://www.jstor.org/stable/1344671
Badinger, H. (2009). Fiscal rules, discretionary fiscal policy and macroeconomic stability: an empirical assessment for OECD countries. Applied Economics, 41(7), 829-847. https://doi.org/10.1080/00036840701367556http://www.jstor.org/stable/1344671
Badinger, H., & Reuter, W. H. (2017). The case for fiscal rules. Economic Modelling, 60, 334-343. https://doi.org/10.1016/j.econmod.2016.09.028
Boeing-Reicher, C. A., & Caponi, V. (2016). Public wages, public employment, and business cycle volatility: evidence from U.S. metro areas. IZA DiscussionPapers, 9965.
Campos, M. M., Depalo, D., Papapetrou, E., Perez, J. J., & Ramos, R. (2017). Understanding the public sector pay gap. IZA Journal of Labor Policy, 6(1), 1-29. https://doi.org/10.1186/s40173-017-0086-0
Caponi, V. (2017a). The effects of public sector employment on the economy. IZA World of Labor 2017(332), 1-10.
Caponi, V. (2017b). Public employment policies and regional unemployment differences. Regional Science and Urban Economics, 63, 1-12. https://doi.org/10.1016/j.regsciurbeco.2016.11.005
Debrun, X., Pisani-Ferry, J., & Sapir, A. (2008). Government size and output volatility: should we forsake automatic stabilization?. IMF Working Paper 08/122.
Easterly, W., Islam, R., & Stiglitz, J. E. (2001). Shaken and stirred: explaining growth volatility. In B. Pleskovic & N. Stern (Eds.), Annual World Bank Conference on Development Economics. Washington, DC.
European Commission. (2014). Government wages and labour market outcomes. European Economy Occasional Papers 190. Retrieved from http://ec.europa.eu/economy_finance/publications/occa-sional_paper/2014/pdf/ocp190_en.pdf
EUROSTAT. (n.d.). Retrieved from https://ec.europa.eu/eurostat/data/database
Fatas, A., & Mihov, I. (2003). The case for restricting fiscal policy discretion. The Quarterly Journal of Economics, 118(4), 1419-1447. https://doi.org/10.1162/003355303322552838
Gali, J. (1994). Government size and macroeconomic stability. European Economic Review, 38(1), 748-756. https://doi.org/10.1016/0014-2921(94)90009-4
Gomes, P. (2015). Optimal public sector wages. The Economic Journal, 125(587), 1425-1451. http://doi.org/10.1111/ecoj.12155
Hallerberg, M., & Strauch, R. (2002). On the cyclicality of public finances in Europe. Empirica, 29(3), 183-207. https://doi.org/10.1023/A:1020299609077
Holm-Hadulla, F., Kamath, K., Lamo, A., Perez, J. J., & Schuknecht, L. (2010). Public wages in the Euro area. Towards securing stability and competitiveness. ECB Occasional Paper Series No. 112. Retrieved from https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp112.pdf
Kollintzas, T., Papageorgiou, D., & Vassilatos, V. (2015). A model of market and political power interactions for Southern Europe. CEPR Discussion Paper 10 359 .
Lamo, A., Pérez, J. J., & Schuknecht, L. (2013). The cyclicality of consumption, wages and employment of the public sector in the euro area. Applied Economics, 45(12), 1551-1569. https://doi.org/10.1080/00036846.2011.631895
Lane, P. (2003). The cyclical behaviour of fiscal policy: evidence from the OECD. Journal of Public Economics, 87(12), 2661-2675. https://doi.org/10.1016/S0047-2727(02)00075-0
Lane, P., & Perotti, R. (2003). The importance of composition of fiscal policy: evidence from different exchange rate regimes. Journal of Public Economics, 87(9-10), 2253-2279. https://doi.org/10.1016/S0047-2727(01)00194-3
OECD. (n.d.). Retrieved from https://data.oecd.org/
Quadrini, V., & Trigari, A. (2007). Public employment and the business cycle. Scandinavian Journal of Economics, 109(4), 723-742. https://doi.org/10.1111/j.1467-9442.2007.00517.x
Ramey, G., & Ramey, V. A. (1991). Technology commitment and the cost of economic fluctuations. NBER Working Papers 3755, National Bureau of Economic Research, Inc. https://doi.org/10.3386/w3755
Ramey, G., & Ramey, V. (1995). Cross-country evidence on the link between volatility and growth. American Economic Review, 85(5), 1138-1151.
World Bank. (n.d.). Retrieved from https://data.worldbank.org/indicator