Wage spillovers across sectors: Evidence from a localized public-sector wage cut
Abstract
We study how institutional wage reforms in one sector spill over to other sectors by analyzing the public sector. We leverage the Japanese policy reform that cut public-sector wages only in certain municipalities and the institutional setting in which only young workers are eligible for public-sector jobs. We find that a 1% public-sector wage cut reduces the private-sector wages of young workers by 0.3%, with larger spillovers in municipalities with a larger share of public workers. It also reduces the young population by 0.4%, suggesting a welfare decline based on spatial equilibrium and a decrease in private-sector labor demand.
Fields of Study & Subjects
Fiscal Policy and Economic Growth
Labor market dynamics and wage inequality
Publication details
- Journal / source
- Journal of Public Economics
- Publisher
- Elsevier BV
- Volume
- 262
- Pages
- 105744–105744
- Publication date
- 3 August 2026
- Language
- EN