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Government Employment and Wages and Labor Market Performance

Author

Listed:
  • Mr. Zenon Kontolemis
  • Mr. Dimitri G Demekas

Abstract

Government wage, benefit, and employment decisions are not taken on a profit-maximizing basis and have a substantial impact on aggregate labor market performance and unemployment. In a two-sector labor market model with free mobility of labor, an increase in government wages or benefits reduces private sector employment, and government employment is not an effective counter-cyclical instrument. Empirical tests for Greece confirm that the expansion of the public sector in the 1980s contributed to the deterioration of labor market performance.

Suggested Citation

  • Mr. Zenon Kontolemis & Mr. Dimitri G Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 1999/055, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/055
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