National and sectoral factors in wage formation in Central and Eastern Europe

The paper investigates the formation of wages in the New Member States in Central and Eastern Europe, in particular the question what the relative role of national and sectoral factors is. While the labor relations in these countries are still in the process of change, some pattern and national differences have emerged. The question is thus to what extent these differences in labor relations are reflected in wage formation. The literature on Western OECD economies is unanimous that coordination of wage bargaining does reduce the wage spread, but disagrees on its effects on unemployment and inflation. The paper analyses wage formation in Slovenia, Slovakia, Hungary, Poland, the Czech Republic and Lithuania by means of a panel analysis for manufacturing sectors. The average wage (in the total economy) serves as a national factor and sectoral productivity serves as a sectoral factor. In variations of the basic estimation equation the role of FDI and openness and of capital intensity and skill are also discussed. The results between countries are compared with the recent index of the coordination of collective bargaining by Visser (2005) and with cross country data on union density.