Comparative Econometric Study Suggests No Dominant Sector for Wage Developments in Luxembourg

The monitoring centre for competitiveness, the Observatoire de Compétitivité, of the Luxembourg Ministry of the Economy has published a comparative study on the effect of sectoral interactions on wages.

The econometric study entitled "Analysis of the impact of sectoral interactions on wage developments: comparison of four countries", carried out by the University of Luxembourg, aims to analyse the sectoral wage interactions in the three neighbouring countries (Germany, Belgium, France) and Luxembourg, and in particular the interactions between wage dynamics in the private and public sectors.

The results of this study show that for Germany, Belgium and Luxembourg, there is no predominant sector leading to wages in other sectors. There is no "wage leadership", but rather a reciprocal sectoral interaction, very strong and fast enough, both for short-term and long-term effects. Only France seems to be an exception. According to the econometric estimates, private-public sectoral interactions are weak or non-existent.

In the case of Luxembourg, the analysis was extended further by taking into account the wages of the broader financial sector, which accounted for about 30% of total employment and 48% of added value in Luxembourg in 2015. Main findings of the three-sector model corroborate the analyses obtained with the two-sector analyses, private-public. Econometric estimates show that there is no dominant sector in Luxembourg, but rather dynamic sectoral interactions of wage developments.

This result could open a new perspective for economic policy. In order to improve the cost competitiveness of the country, if it proves necessary, it is useless to rely on the wage development of a single sector, on the contrary, it is necessary to aim for a wage conciliation encompassing the main sectors.