The Role of Public Sector Wage Rates in the Determination of Labour Share

In a working paper on the functional distribution of income in Greece, Ioannidis (2020) found that the Labour Share (LS) of the total economy has recovered to pre-crisis levels, but this effect was solely due to the impact of public sector employment. When he calculated the LS in the private sector, he found a stronger decrease during the crisis period and a significant lag compared to pre-crisis levels. In this study, we expand this research in two directions. Firstly, we investigate if a similar effect is observed in the rest of the euro-zone countries by working on updated data series of their labour shares. Secondly, we examine if civil servants’ wages act in a pro-cyclical or anti-cyclical manner in euro-zone member states and whether there are common trends in specific country groupings.