Pre-Crisis Wage Leadership in Croatia in the Context of Export Competitiveness: Any Lessons for the Future?

Abstract

This study explores the determinants of sectoral wage dynamics in Croatia, including inter-sectoral wage linkages, using both panel data methods and Granger causality analysis. Given the large deficits in Croatian merchandise trade and accumulated external liabilities, wage formation in the exporting sectors receives a particular focus. It has been found that exporters are wage leaders and that labour productivity is a more important wage determinant for the exporting sectors than for other sectors. Public sector wages do not affect wages in private sectors. There are, however, wage spillovers within the group of exporting sectors and possibly a bi-directional causal relationship between wages in exporting and private sheltered sectors. Thus, some exporting industries may face pressure from wage increases in more successful exporting sectors as well as in private sheltered sectors. A more coordinated wage-setting system could contribute to improving overall export performance and reducing external trade imbalances.