Advanced Search
MyIDEAS: Login

Public and private sector wages interactions in a general equilibrium model

Contents:

Author Info

  • Gonzalo Fernández-de-Córdoba
  • Javier Pérez

    ()

  • José Torres

Abstract

This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1007/s11127-010-9705-7
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 150 (2012)
Issue (Month): 1 (January)
Pages: 309-326

as in new window
Handle: RePEc:kap:pubcho:v:150:y:2012:i:1:p:309-326

Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Public wages; Public employment; Labor market; Trade unions; J30; J45; J51; J52; E62; H50;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Holm-Hadulla, Fédéric & Kamath, Kishore & Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2010. "Public wages in the euro area - towards securing stability and competitiveness," Occasional Paper Series 112, European Central Bank.
  2. Courant, Paul N & Gramlich, Edward M & Rubinfeld, Daniel L, 1979. "Public Employee Market Power and the Level of Government Spending," American Economic Review, American Economic Association, vol. 69(5), pages 806-17, December.
  3. Blanchflower, David G, 1991. "Fear, Unemployment and Pay Flexibility," Economic Journal, Royal Economic Society, vol. 101(406), pages 483-96, May.
  4. J. Lindquist & Roger Vilhelmsson, 2006. "Is the Swedish central government a wage leader?," Applied Economics, Taylor & Francis Journals, vol. 38(14), pages 1617-1625.
  5. Schuknecht, Ludger, 2000. " Fiscal Policy Cycles and Public Expenditure in Developing Countries," Public Choice, Springer, vol. 102(1-2), pages 115-30, January.
  6. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Scholarly Articles 2579823, Harvard University Department of Economics.
  7. Canice Prendergast, 2007. "The Motivation and Bias of Bureaucrats," American Economic Review, American Economic Association, vol. 97(1), pages 180-196, March.
  8. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2008. "Public and private sector wages: co-movement and causality," Working Paper Series 0963, European Central Bank.
  9. Vincenzo Quadrini & Antonella Trigari, 2008. "Public Employment and the Business Cycle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 723-742, 03.
  10. Gelb, A & Knight, John B & Sabot, R H, 1991. "Public Sector Employment, Rent Seeking and Economic Growth," Economic Journal, Royal Economic Society, vol. 101(408), pages 1186-99, September.
  11. António Afonso & Pedro Gomes, 2008. "Interactions between Private and Public Sector Wages," Working Papers Department of Economics 2008/55, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  12. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 1999. "Fiscal Policy, Profits, and Investment," NBER Working Papers 7207, National Bureau of Economic Research, Inc.
  13. Freeman, Richard B, 1986. "Unionism Comes to the Public Sector," Journal of Economic Literature, American Economic Association, vol. 24(1), pages 41-86, March.
  14. Malley, Jim & Moutos, Thomas, 1996. " Does Government Employment "Crowd-Out" Private Employment? Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 289-302, June.
  15. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2007. "The cyclicality of consumption, wages and employment of the public sector in the euro area," Working Paper Series 0757, European Central Bank.
  16. Holmlund, Bertil, 1993. "Wage setting in private and public sectors in a model with endogenous government behavior," European Journal of Political Economy, Elsevier, vol. 9(2), pages 149-162, May.
  17. Allen, Steven G, 1987. "Can Union Labor Ever Cost Less?," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 347-73, May.
  18. Matschke, Xenia, 2003. " Are There Election Cycles in Wage Agreements? An Analysis of German Public Employees," Public Choice, Springer, vol. 114(1-2), pages 103-35, January.
  19. Freeman, Richard B, 1988. "Contraction and Expansion: The Divergence of Private Sector and Public Sector Unionism in the United States," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 63-88, Spring.
  20. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
  21. Domeij, David & Ljungqvist, Lars, 2006. "Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002," Working Paper Series in Economics and Finance 638, Stockholm School of Economics.
  22. Lorenzo Forni & Raffaela Giordano, 2003. "Employment in the Public Sector," CESifo Working Paper Series 1085, CESifo Group Munich.
  23. Rodrik, Dani, 2000. "What Drives Public Employment in Developing Countries?," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 229-43, October.
  24. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
  25. Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
  26. Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
  27. Evi Pappa, 2009. "The effects of fiscal expansions: an international comparison," Working Papers 409, Barcelona Graduate School of Economics.
  28. Waters, Melissa & Moore, William J, 1990. " The Theory of Economic Regulation and Public Choice and the Determinants of Public Sector Bargaining Legislation," Public Choice, Springer, vol. 66(2), pages 161-75, August.
  29. Ehrenberg, Ronald G. & Goldstein, Gerald S., 1975. "A model of public sector wage determination," Journal of Urban Economics, Elsevier, vol. 2(3), pages 223-245, July.
  30. Borjas, George J, 1984. "Electoral Cycles and the Earnings of Federal Bureaucrats," Economic Inquiry, Western Economic Association International, vol. 22(4), pages 447-59, October.
  31. Pedro Gomes, 2011. "Fiscal policy and the labour market: the effects of public sector employment and wages," European Economy - Economic Papers 439, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  32. Demekas, Dimitri G & Kontolemis, Zenon G, 2000. " Government Employment and Wages and Labour Market Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(3), pages 391-415, July.
  33. Chris Robinson, 1995. "Union Incidence in the Public and Private Sectors," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1056-76, November.
  34. Keith A. Bender, 2003. "Examining Equality between Public- and Private-Sector Wage Distributions," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 62-79, January.
  35. Monojit Chatterji & Karen Mumford, 2007. "The Public-Private Sector Wage Differential for Full-Time Male Employees in Britain: A Preliminary Analysis," Dundee Discussion Papers in Economics 201, Economic Studies, University of Dundee.
  36. Luca Sessa & Libero Monteforte & Lorenzo Forni, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," 2007 Meeting Papers 352, Society for Economic Dynamics.
  37. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
  38. Ardagna, Silvia, 2001. " Fiscal Policy Composition, Public Debt, and Economic Activity," Public Choice, Springer, vol. 109(3-4), pages 301-25, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Cortuk, Orcan & Güler, Mustafa Haluk, 2013. "A disaggregated approach to the government spending shocks: an theoretical analysis," MPRA Paper 45318, University Library of Munich, Germany.
  2. George Economides & Apostolis Philippopoulos & Vangelis Vassilatos, 2011. "Public Providers, versus Private Providers, of Public Goods: A General Equilibrium Study of the Role of the State," CESifo Working Paper Series 3487, CESifo Group Munich.
  3. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2013. "Are government wages interlinked with private sector wages?," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 697-712.
  4. Aleksandar Vasilev, 2013. "Cyclical and welfare effects of public sector unions in a Real-Business-Cycle model," Working Papers 2013_19, Business School - Economics, University of Glasgow.
  5. Gonzalo F De córdoba & Javier J Pérez & José L Torres, 2012. "On the substitutability between public and private employment," Economics Bulletin, AccessEcon, vol. 32(3), pages 2700-2709.
  6. Javier Pérez, 2010. "Discussion of the paper “A rational expectations model for simulation and policy evaluation of the Spanish economy”," SERIEs, Spanish Economic Association, vol. 1(1), pages 171-173, March.
  7. Aleksandar Vasilev, 2013. "Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours," Working Papers 2013_18, Business School - Economics, University of Glasgow.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:150:y:2012:i:1:p:309-326. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.