The Interaction between Public and Private Sector Wages

This paper studies the interactions between private and public sector wages. We raise questions about co-movement of these variables and leadership in wage setting in the short and long run. Using statistical and econometric tools we find (1) a strong and positive correlation of public and private sector wages; (2) evidence of private wage leadership in the long run. However, in the short run there are feedback effects from public wage setting (under specific political decisions) to private sector wages that affect the international competitiveness of the Russian economy.