Sectoral Wage Dynamics and Their Determinants in a Small Open Economy: Evidence from Lithuania

Abstract

This study investigates the evolution and determinants of employee wage and salary expenditures in Lithuania’s manufacturing (C), wholesale and retail trade (G), transport and storage (H), and information and communication (J) sectors over the period 2001–2023. Using annual data from the Lithuanian State Data Agency, the research explores how sectoral wage developments are shaped by microeconomic factors (enterprise turnover), macroeconomic conditions (unemployment rate), and institutional determinants (minimum wage policy). The econometric analysis employs panel cointegration techniques, specifically the Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators, to capture long-run equilibrium relationships and correct for endogeneity and serial correlation. The empirical findings reveal sector-specific sensitivities to macroeconomic fluctuations and institutional adjustments, indicating that wage dynamics in Lithuania’s economy are influenced not only by productivity and market conditions but also by policy-induced wage interventions. These results provide evidence-based insights relevant for wage policy design and macroeconomic stabilization in small open European economies.