The effect of public wages on corporate compensation in Hungary

I identify wage spillovers from the public to the corporate sector with the help of a large and sudden public sector wage increase, which raised real compensation by 40 percent in two years, changing the average public wage premium from minus 10 to plus 12 percent. Using a dataset covering about 7 percent of Hungarian workers and their employer, the spillover effect is identified with the variation of the share of public sector employment within groups defined by gender, experience and occupation. The analysis shows that 10 percent higher share of public sector workers within worker-type induces an additional wage growth of 15-20 percent around the wage increase. Controlling for firm (worker spell) fixed effects does not change the results qualitatively and results in a spillover effect of 11-14 (7.5-12) percent. The spillover effect is positively correlated with the public wage premium within worker type, with occupations which are abundant in the public sector, with the availability of public sector jobs and being hired after the wage increase

Wage spillovers between the public and corporate sectors

The dataset used in this study is the Hungarian Wage Tariff Survey Data, hosted by the National Employment Office. It provides yearly information on workers’ year of birth, gender, highest level of education, occupation, earnings, tenure and type of contract (corporate and two types of public sector labor relation, as discussed below). These data are recorded for May of a given year. I use the years between 1998 and 2006 in this chapter as the public wage in - crease took place in the middle of this period. I keep in the sample only full time employees between 18 and 60 years. The police, military, firemen and border guards are not included in the public sec - tor data, and I excluded the legal professions as their employment relation is regulated by a special law and they were not subject to the wage increase. The final sample includes 379–487 thousand public sector employees and 106–153 thousand corporate workers. The comparison of the sample and the popula - tion data reveals that the sample of corporate and public sector employees is about 7–8 and 70 per cent, respectively

Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials using LEED from Hungary, 1986-2003

Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.