Interactions Between Public and Private Sector Wages and Inflation in Mongolia
IMF Working Papers, March 14, 2025
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- Interactions Between Public and Private Sector Wages and Inflation in Mongolia
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Bibliographic details
- Authors: Tigran Poghosyan
- Published: March 14, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229001267.001
Study objective and scope
- Aim: Empirically investigate the relationship between public sector wages, private sector wages, and inflation in Mongolia.
- Dataset: Quarterly data spanning from 2000Q4 to 2023Q4.
- Context: The substantial increase in public sector wages introduced in the 2023 supplementary budget and the observation that both public and private sector wages grew on average faster than labor productivity in Mongolia during 2000-2023.
Methodology
- Empirical approach: Structural vector autoregression (SVAR) model.
- Purpose of method: Analyze dynamic interactions and uncover causal relationships among public sector wages, private sector wages, and inflation.
Key findings
- Timing and magnitude of wage shocks on inflation:
- A shock to private sector wages exerts a stronger immediate impact on inflation, peaking within the first four quarters.
- A shock to public sector wages manifests a delayed effect on inflation, peaking between the sixth and ninth quarters.
- Cross-sector wage spillovers:
- Shocks to public sector wages have a small and short-lived effect on private sector wages.
- Shocks to private sector wages significantly influence public sector wages, suggesting that the private sector has a more leading role in wage setting behavior.
- Long-run context:
- Both public and private sector wages grew on average faster than labor productivity in Mongolia during 2000-2023, with substantial implications for inflation.
Policy implications and recommendations
- Public wage policy design:
- Public wage policies should be closely aligned with productivity changes.
- Aligning public wages with productivity can contribute to macroeconomic and price stability in Mongolia.
- Considerations for managing inflationary pressures:
- Recognize the stronger and earlier inflationary impact of private sector wage shocks when designing stabilization policies.
- Account for the delayed inflationary effect of public sector wage increases in medium-term fiscal planning.
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- Working Paper