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Cyclical and welfare effects of public sector unions in a Real-Business-Cycle model

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  • Aleksandar Vasilev

Abstract

Motivated by the highly-unionized public sectors, the high public shares in total em- ployment, and the public sector wage premia observed in Europe, this paper examines the importance of public sector unions for macroeconomic theory. The model gen- erates cyclical behavior in hours and wages that is consistent with data behavior in an economy with highly-unionized public sector, namely Germany during the period 1970-2007. The union model is a significant improvement over a model with exogenous public employment. In addition, endogenously-determined public wage and hours add to the distortionary effect of contractionary tax reforms by generating greater tax rate changes, thus producing significantly higher welfare losses.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2013_19.

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Date of creation: Aug 2013
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Handle: RePEc:gla:glaewp:2013_19

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Keywords: fiscal policy; public wages; public employment; public sector labor unions;

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  1. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc.
  2. Gonzalo Fernández-de-Córdoba & Javier J. Pérez & José L. Torres, 2009. "Public and private sector wages interactions in a general equilibrium model," Banco de Espa�a Working Papers 0924, Banco de Espa�a.
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  4. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
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  7. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2008. "Public and private sector wages: co-movement and causality," Working Paper Series 0963, European Central Bank.
  8. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
  9. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
  10. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  11. Johnson, George E, 1975. "Economic Analysis of Trade Unionism," American Economic Review, American Economic Association, vol. 65(2), pages 23-28, May.
  12. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
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