The effect of public wages on corporate compensation in Hungary \n

I identify wage spillovers from the public to the corporate sector with the help of a large and \nsudden public sector wage increase, which raised real compensation by 40 percent in two \nyears, changing the average public wage premium from minus 10 to plus 12 percent. Using a \ndataset covering about 7 percent of Hungarian workers and their employer, the spillover \neffect is identified with the variation of the share of public sector employment within groups \ndefined by gender, experience and occupation. The analysis shows that 10 percent higher \nshare of public sector workers within worker-type induces an additional wage growth of 15-20 \npercent around the wage increase. Controlling for firm (worker spell) fixed effects does not \nchange the results qualitatively and results in a spillover effect of 11-14 (7.5-12) percent. The \nspillover effect is positively correlated with the public wage premium within worker type, with \noccupations which are abundant in the public sector, with the availability of public sector jobs \nand being hired after the wage increase.