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Fiscal policy and the labour market: the effects of public sector employment and wages

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  • Pedro Gomes

Abstract

I build a dynamic stochastic general equilibrium model with search and matching frictions in order to study the labour market effects of public sector employment and wages. Public sector wages are important to achieve the effcient allocation. High wages induce too many unemployed to queue for public sector jobs, raising unemployment. Following technology shocks, public sector wages should be procyclical and deviations from the optimal policy increase the volatility of unemployment significantly. Another conclusion is that different types of fiscal shocks have opposite effects on labour market variables. I then estimate the parameters of the model for the United States

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 439.

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Length: 60 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:euf:ecopap:0439

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  1. Fabien Postel-Vinay & Hélène Turon, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," The Centre for Market and Public Organisation 05/121, Department of Economics, University of Bristol, UK.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Fiscal Policy and the Labour Market: The Effects of Public Sector Employment and Wages
    by Christian Zimmermann in NEP-DGE blog on 2010-12-30 14:35:19
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Cited by:
  1. Gonzalo Fernàndez-de-Córdoba & Javier J. Pérez & José L. Torres, 2009. "Public and private sector wages interactions in a general equilibrium model," Working Paper Series 1099, European Central Bank.
  2. Valerie A. Ramey, 2012. "Government Spending and Private Activity," NBER Chapters, in: Fiscal Policy after the Financial Crisis National Bureau of Economic Research, Inc.
  3. Tommaso Monacelli & Roberto Perotti & Antonella Trigari, 2010. "Unemployment Fiscal Multipliers," NBER Working Papers 15931, National Bureau of Economic Research, Inc.
  4. Steinar Holden & Victoria Sparrman, 2011. "Do Government Purchases Affect Unemployment?," CESifo Working Paper Series 3482, CESifo Group Munich.
  5. Michaillat, Pascal, 2011. "Fiscal Multipliers Over the Business Cycle," CEPR Discussion Papers 8610, C.E.P.R. Discussion Papers.
  6. Burgert, Matthias & Gomes, Pedro, 2011. "The Effects of Government Spending: A Disaggregated Approach," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48690, Verein für Socialpolitik / German Economic Association.
  7. Roland Winkler & Alexander Totzek, 2011. "Fiscal Stimulus in a Business Cycle Model with Firm Entry," 2011 Meeting Papers 140, Society for Economic Dynamics.
  8. Totzek, Alexander & Winkler, Roland C., 2010. "Fiscal stimulus in model with endogenous firm entry," MPRA Paper 26829, University Library of Munich, Germany, revised Nov 2010.
  9. James Costain & Beatriz de Blas, 2012. "Smoothing shocks and balancing budgets in a currency union," Banco de España Working Papers 1207, Banco de España.
  10. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
  11. Costain, James & de Blas, Beatriz, 2012. "The role of fiscal delegation in a monetary union: a survey of the political economy issues," Working Papers in Economic Theory 2012/11, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  12. Jörn Tenhofen & Guntram B. Wolff, 2010. "Does anticipation of government spending matter? The role of (non-)defense spending," Bonn Econ Discussion Papers bgse12_2010, University of Bonn, Germany.

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