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The Labor Share and the Size of Government

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  • François Facchini
  • Mickael Melki
  • Andrew Pickering

Abstract

The 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 Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 13/02.

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Date of creation: Jan 2013
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Handle: RePEc:yor:yorken:13/02

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Keywords: Size of government; labor share; Baumol's cost disease;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How the wage squeeze helps the Tories
    by chris dillow in Stumbling and Mumbling on 2013-02-09 13:36:20
  2. 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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