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Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers

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  • Jan K. Brueckner
  • David Neumark

Abstract

Rent extraction by public sector workers may be limited by the ability of taxpayers to vote with their feet. But rent extraction may be higher in regions where high amenities mute the migration response. This paper develops a theoretical model that predicts such a link between public sector wage differentials and local amenities, and the predictions are tested by analyzing variation in these differentials and amenities across states. Public sector wage differentials are, in fact, larger in the presence of high amenities, with the effect stronger for unionized public sector workers, whose political power may allow greater scope for rent extraction.

Suggested Citation

  • Jan K. Brueckner & David Neumark, 2014. "Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 198-230, May.
  • Handle: RePEc:aea:aejpol:v:6:y:2014:i:2:p:198-230
    Note: DOI: 10.1257/pol.6.2.198
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    References listed on IDEAS

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    1. Gyourko, Joseph & Tracy, Joseph, 1989. "The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1208-1231, October.
    2. Gyourko, Joseph & Tracy, Joseph, 1989. "Local public sector rent-seeking and its impact on local land values," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 493-516, August.
    3. Gramlich, Edward M, 1976. "The New York City Fiscal Crisis: What Happened and What Is to Be Done?," American Economic Review, American Economic Association, vol. 66(2), pages 415-429, May.
    4. Alan B. Krueger, 1988. "Are Public Sector Workers Paid More Than Their Alternative Wage? Evidence from Longitudinal Data and Job Queues," NBER Chapters,in: When Public Sector Workers Unionize, pages 217-242 National Bureau of Economic Research, Inc.
    5. Mendelsohn, Robert & Nordhaus, William D & Shaw, Daigee, 1994. "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, American Economic Association, vol. 84(4), pages 753-771, September.
    6. Henderson, J. Vernon, 1982. "Evaluating consumer amenities and interregional welfare differences," Journal of Urban Economics, Elsevier, vol. 11(1), pages 32-59, January.
    7. Gyourko, Joseph & Kahn, Matthew & Tracy, Joseph, 1999. "Quality of life and environmental comparisons," Handbook of Regional and Urban Economics,in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 37, pages 1413-1454 Elsevier.
    8. Glaeser, Edward L. & Kahn, Matthew E., 2004. "Sprawl and urban growth," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 56, pages 2481-2527 Elsevier.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Two Photos Explain Why Coastal California Continues to Be #1
      by Matthew Kahn in Environmental and Urban Economics on 2014-11-24 01:50:00
    2. In Praise of David Neumark
      by Adam Ozimek in Modeled Behavior on 2015-07-30 05:07:00

    Citations

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    Cited by:

    1. Mirco Tonin & Michael Vlassopoulos, 2015. "Are public sector workers different? Cross-European evidence from elderly workers and retirees," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-21, December.
    2. Lutgen, Vanessa & Van der Linden, Bruno, 2015. "Regional equilibrium unemployment theory at the age of the Internet," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 50-67.
    3. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
    4. Rickman, Dan S. & Wang, Hongbo & Winters, John V., 2015. "Adjusted State Teacher Salaries and the Decision to Teach," IZA Discussion Papers 8984, Institute for the Study of Labor (IZA).
    5. repec:ucp:jpolec:doi:10.1086/693137 is not listed on IDEAS
    6. repec:eee:pubeco:v:154:y:2017:i:c:p:95-121 is not listed on IDEAS
    7. Marius Brülhart & Helen Simpson, 2018. "Agglomeration economies, taxable rents and government capture: evidence from a place-based policy," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 319-353.
    8. Matthew Davis & Fernando V. Ferreira, 2017. "Housing Disease and Public School Finances," NBER Working Papers 24140, National Bureau of Economic Research, Inc.
    9. Eric J. Brunner & Joshua Hyman & Andrew Ju, 2018. "School Finance Reforms, Teachers’ Unions, and the Allocation of School Resources," Working papers 2018-11, University of Connecticut, Department of Economics.
    10. Peter McHenry & Melissa McInerney, 2014. "The Importance of Cost of Living and Education in Estimates of the Conditional Wage Gap Between Black and White Women," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 695-722.
    11. Alexandre Mas, 2017. "Does Transparency Lead to Pay Compression?," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1683-1721.
    12. Ruben Enikolopov, 2011. "Are Bureaucrats Really Paid Like Bureaucrats?," Working Papers w0165, Center for Economic and Financial Research (CEFIR).
    13. Rebecca Diamond, 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 74-111, February.
    14. Andrew Chamberlain, 2015. "Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State," Journal of Labor Research, Springer, vol. 36(4), pages 347-388, December.
    15. Brunner, Eric J. & Johnson, Erik B., 2016. "Intergenerational conflict and the political economy of higher education funding," Journal of Urban Economics, Elsevier, vol. 91(C), pages 73-87.

    More about this item

    JEL classification:

    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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