Is There A Signalling Role For Public Wages? Evidence For The Euro Area Based On Macro Data

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Do public sector wages exert pressures on private sector wages, or has the private sector a leadership role in wage setting? One sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and the periods 1980-2007 and 1991-2007. It exploits available quarterly information not yet time series models. The quarterly frequency of the data allows them to check the existence of purely intra-annual links between public and private sector wages (signaling effect). There is strong evidence of public wages' leadership, either in conjunction with bi-directional links from the private sector (Germany and Spain) or pure public wage leadership (France in the sample 1991-2007, Italy for within-the-year linkages).