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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 the authors 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.
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