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Public Employment Redux

Author

Listed:
  • Pietro Garibaldi

    (Collegio Carlo Alberto Università degli Studi di Torino)

  • Pedro Gomes

    (Department of Economics, Mathematics and Statistics Birkbeck College
    Centre for Macroeconomics (CFM))

  • Thepthida Sopraseuth

    (Théorie Économique, Modélisation, Application (THEMA) Université de Cergy-Pontoise)

Abstract

The public sector hires disproportionately more educated workers. Using US microdata, we show that the education bias also holds within industries and in two thirds of 3-digit occupations. To rationalize this finding, we propose a model of private and public employment based on two features. First, alongside a perfectly competitive private sector, a cost-minimizing government acts with a wage schedule that does not equate supply and demand. Second, our economy features heterogeneity across individuals and jobs, and a simple sorting mechanism that generates underemployment – educated workers performing unskilled jobs. The equilibrium model is parsimonious and is calibrated to match key moments of the US public and private sectors. We find that the public-sector wage differential and excess underemployment account for 15 percent of the education bias, with the remaining accounted for by technology. In a counterintuitive fashion, we find that more wage compression in the public sector raises inequality in the private sector. A 1 percent increase in unskilled public wages raises skilled private wages by 0.07 percent and lowers unskilled private wages by 0.06 percent.

Suggested Citation

  • Pietro Garibaldi & Pedro Gomes & Thepthida Sopraseuth, 2019. "Public Employment Redux," Discussion Papers 2001, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:2001
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    References listed on IDEAS

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    3. Bettoni, Luis G. & Santos, Marcelo R., 2022. "Public sector employment and aggregate fluctuations," Journal of Macroeconomics, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Public Sector Employment; Public-sector wages; Underemployment; Education;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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