Hence, the larger the public sector, the more important, and the more challenging, will be its role in the overall evolution of cost competitiveness. Evidence reveals an important influence from public sector wages to private wages in many euro area countries. Public wage spillovers seem to be particularly important in countries that have experienced high and volatile public wage growth.
Thus, rapid increases in unit labour costs and severe losses in intra-euro area competitiveness do not come as a surprise in these countries (Pérez and Sanchez, 2010 and Holm-Hadulla et al., 2010). 3. Less than 2% but close to 2% over the medium term is the right benchmark to use for euro area countries to calculate competitiveness indicators in real terms.