Beaches, sunshine, and public-sector pay: theory and evidence on amenities and rent extraction by government workers
AbstractThe absence of a competitive market and the presence and strength of public-sector labor unions make it likely that public-sector pay reflects an element of rent extraction by government workers. In this paper, we test a specific hypothesis that connects such rent extraction to the level of local amenities. Specifically, although migration of taxpayers limits the extent of rent-seeking, public-sector workers may be able to extract higher rents in regions where high amenities mute the migration response. We develop a theoretical model that predicts such a link between public-sector wage differentials and local amenities, and we test the model’s predictions by analyzing variation in these wage differentials and amenities across states. The evidence reveals that public-sector wage differentials are, in fact, larger in the presence of high amenities, with the effect being stronger for unionized public-sector workers, who are likely better able to exercise political power in extracting rents.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/42.
Length: 52 pages
Date of creation: 2011
Date of revision:
Public-sector pay; unions; amenities;
Other versions of this item:
- Jan K. Brueckner & David Neumark, 2011. "Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers," NBER Working Papers 16797, National Bureau of Economic Research, Inc.
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-LAB-2012-01-18 (Labour Economics)
- NEP-LMA-2012-01-18 (Labor Markets - Supply, Demand, & Wages)
- NEP-MIG-2012-01-18 (Economics of Human Migration)
- NEP-TUR-2012-01-18 (Tourism Economics)
- NEP-URE-2012-01-18 (Urban & Real Estate Economics)
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