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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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    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. Brülhart, Marius, 2014. "Agglomeration economies, taxable rents, and government capture: evidence from a place-based policy," Papers 835, World Trade Institute.
    2. Alexandre Mas, 2017. "Does Transparency Lead to Pay Compression?," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1683-1721.
    3. 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.
    4. Matthew Davis & Fernando V. Ferreira, 2017. "Housing Disease and Public School Finances," NBER Working Papers 24140, National Bureau of Economic Research, Inc.
    5. 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.
    6. 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).
    7. 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.
    8. Firth, Michael & Gong, Stephen X. & Shan, Liwei, 2013. "Cost of government and firm value," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 136-152.
    9. 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.
    10. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
    11. repec:oup:jecgeo:v:18:y:2018:i:2:p:319-353. is not listed on IDEAS
    12. 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.
    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. repec:eee:pubeco:v:154:y:2017:i:c:p:95-121 is not listed on IDEAS

    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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