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Public Sector Wage Bargaining, Unemployment, and Inequality

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  • Gabriele Cardullo

    ()
    (DIEM, Faculty of Economics, University of Genoa, Italy)

Abstract

In many countries, the government pays almost identical nominal wages to workers living in regions with notable economic disparities. In most cases this is the result of highly centralized pay systems. By developing a two-region general equilibrium model with unions and search frictions in the labour market, I study the differences in terms of unemployment, real wages, and inequality between a regional wage bargaining process and a national one in the public sector. Adopting the former lowers public sector real salaries but it also decreases unemployment and jacks up private sector real earnings. Simulations conducted on the basis of Italian data show that, compared to a national negotiation process, a regional one also increases inequality both within and between regions.

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File URL: http://www.dep.unige.it/RePEc/gea/wpaper/dwpo-2-feb2012.pdf
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Bibliographic Info

Paper provided by University of Genoa, Research Doctorate in Public Economics in its series DEP - series of economic working papers with number 2/2012.

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Date of creation: Feb 2012
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Handle: RePEc:gea:wpaper:2/2012

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Keywords: public sector wages; unemployment; economic integration; local labour markets;

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  1. Robert F. Elliott & Kostas G. Mavromaras & Dominique Meurs, 2007. "Special Issue On Public Sector Pay Structures And Regional Competitiveness: Editors' Introduction," Manchester School, University of Manchester, vol. 75(4), pages 373-385, 07.
  2. J. Ignacio García-Pérez & Juan F. Jimeno, 2006. "Public sector wage gaps in Spanish regions," Working Papers 06.10, Universidad Pablo de Olavide, Department of Economics.
  3. A Rosen, 1992. "An Equilibrium Search-Matching Model of Discrimination," CEP Discussion Papers dp0097, Centre for Economic Performance, LSE.
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  8. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
  9. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  10. Ehrenberg, Ronald G. & Schwarz, Joshua L., 1987. "Public-sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 22, pages 1219-1260 Elsevier.
  11. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  12. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
  13. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  14. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
  15. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  16. Borjas, George J., 1986. "The earnings of state government employees in the United States," Journal of Urban Economics, Elsevier, vol. 19(2), pages 156-173, March.
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