Public wage spillovers: The role of individual characteristics and employer wage policies

Using a large and unexpected public wage increase in Hungary, which changed the public wage premium from −17 to +7.5% from one month to the next, I study wage spillovers from the public to the corporate sector. I proxy the exposure of corporate workers to the public sector with the variation of the share of public sector employment within labor market segments defined by gender, experience, occupation and region. Controlling for worker-firm joint fixed effects and instrumenting the exposure variable with its past values, I estimate a wage differential of 9.6% around the wage increase between two workers situated at the 25th and the 75th percentile of the exposure measure. The firm's exposure to the public sector (measured as the average of individual exposures of the firm's workforce) produces a wage differential of 13.6%, suggesting that employers are concerned about wage tensions. The spillover affected primarily young, and therefore, mobile, workers and the highly educated, who are abundant in the public sector.