The Labor Share and the Size of Government
AbstractThe size of government depends positively on the labor share given price-inelastic demand for public services. OECD data support this hypothesis and also show a stronger dependence under left-wing ideology because larger government employs a larger workforce. A permanent one standard deviation increase in the labor share is found on average to increase government size by about 9% of GDP, with increases of 6% in right-wing countries and 12% in left-wing countries. Contrary to Baumol's cost-disease the relationship is estimated to be independent of income. Recent reductions in the labor-share have substantially slowed the growth of government in many countries.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 13/02.
Date of creation: Jan 2013
Date of revision:
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More information through EDIRC
Size of government; labor share; Baumol's cost disease;
Find related papers by JEL classification:
- H10 - Public Economics - - Structure and Scope of Government - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-DEM-2013-02-03 (Demographic Economics)
- NEP-PBE-2013-02-03 (Public Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- How the wage squeeze helps the Tories
by chris dillow in Stumbling and Mumbling on 2013-02-09 13:36:20
- On the causality between the labor income share and the size of governments
by Economic Logician in Economic Logic on 2013-02-14 15:17:00
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