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Public Sector Wage Bargaining, Unemployment, and Inequality

  • Gabriele Cardullo


    (DIEM, Faculty of Economics, University of Genoa, Italy)

In many countries, the government pays almost identical nominal wages to workers living in regions with notable economic disparities. In most cases this is the result of highly centralized pay systems. By developing a two-region general equilibrium model with unions and search frictions in the labour market, I study the differences in terms of unemployment, real wages, and inequality between a regional wage bargaining process and a national one in the public sector. Adopting the former lowers public sector real salaries but it also decreases unemployment and jacks up private sector real earnings. Simulations conducted on the basis of Italian data show that, compared to a national negotiation process, a regional one also increases inequality both within and between regions.

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Paper provided by University of Genoa, Research Doctorate in Public Economics in its series DEP - series of economic working papers with number 2/2012.

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Date of creation: Feb 2012
Date of revision:
Handle: RePEc:gea:wpaper:2/2012
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  15. Borjas, George J., 1986. "The earnings of state government employees in the United States," Journal of Urban Economics, Elsevier, vol. 19(2), pages 156-173, March.
  16. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York.
  17. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
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