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How harmful are cuts in public employment and wage in times of high unemployment?

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  • Thomas COUDERT

    (LaRGE Research Center, Université de Strasbourg)

  • Thierry BETTI

Abstract

Since 2010 public employment and public-sector salaries have been significantly reduced in most Euro Area member states. In this article we show to what extent these cuts in the public sector have been costly particularly in terms of employment and output. In a New Keynesian model with a two-sector labor market, we demonstrate that the cost of these spending cuts on employment and output is significantly larger in periods of high unemployment. We also exhibit that cuts in public employment and wage in a Eurozone prone to high unemployment have only a limited ability to reduce deficit.

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  • Thomas COUDERT & Thierry BETTI, 2016. "How harmful are cuts in public employment and wage in times of high unemployment?," Working Papers of LaRGE Research Center 2016-05, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2016-05
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    Cited by:

    1. Amélie Barbier‐Gauchard & Thierry Betti, 2021. "Spillover effects of fiscal policy in a monetary union: Why do fiscal instruments matter?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(1), pages 1-33, January.
    2. Amélie BARBIER-GAUCHARD & Thierry BETTI & Théo METZ, 2023. "Fiscal multipliers, public debt anchor and government credibility in a behavioural macroeconomic model," Working Papers of BETA 2023-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Amelie Barbier-Gauchard & Thierry Betti & Theo Metz, 2023. "Fiscal multipliers, public debt anchor and government credibility in a behavioural macroeconomic model," Working Papers 2023.10, International Network for Economic Research - INFER.

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    More about this item

    Keywords

    Fiscal Policy; Public Employment; Public Wage; Labor Market; Unemployment.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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