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Public jobs creation and unemployment dynamics

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    Abstract

    This paper raises the question of the dynamic effects of public spending in jobs on labor market performance. We use a dynamic matching model and study how public jobs creation affects endogenous workers' decisions to move on the labor market and private-sector firms' job creation and destruction decisions. We obtain that it exerts an attracting effect and a fiscal effect on the labor market that make the unemployment rate and job flows overshoot. As an empirical illustration, we estimate a SVAR model that focuses on the consequences of public job creations on unemployment, wages and job flows dynamics. We confirm our intuition : public employment has a significant ambiguous effect on private wages.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/V06026.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06026.

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    Length: 42 pages
    Date of creation: Mar 2006
    Date of revision:
    Handle: RePEc:mse:wpsorb:v06026

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    Keywords: Public sector labor market; unemployment dynamics.;

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    1. repec:hal:cesptp:halshs-00256207 is not listed on IDEAS
    2. Gamber, Edward N & Joutz, Frederick L, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1387-93, December.
    3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    4. Jim Malley & Thomas Moutos, . "Government Employment and Unemployment: With One Hand Giveth, the Other Taketh," ICMM Discussion Papers 47, Department of Economics University of Strathclyde.
    5. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
    6. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December.
    7. Demekas, Dimitri G & Kontolemis, Zenon G, 2000. " Government Employment and Wages and Labour Market Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(3), pages 391-415, July.
    8. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-52, June.
    9. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
    10. John Haltiwanger & Steven J. Davis, 1999. "On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation," American Economic Review, American Economic Association, vol. 89(5), pages 1234-1258, December.
    11. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
    12. Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public Employment and Labor Market Performances," Sciences Po publications info:hdl:2441/8846, Sciences Po.
    13. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
    14. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
    15. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
    16. Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
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