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Public Sector Wage Policy and Labor Market Equilibrium: A Structural Model

Author

Listed:
  • Jake Bradley
  • Fabien Postel-Vinay

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, LEA - Laboratoire d'Economie Appliquée - INRA - Institut National de la Recherche Agronomique, Department of Economics - UCL - University College of London [London], PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research - CEPR, Departement of Economics - University of Bristol - University of Bristol [Bristol], IZA - Institute for the Study of Labor - Institute for the Study of Labor, DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique, INRA)

  • Hélène Turon

Abstract

We develop and estimate a structural model that incorporates a sizable public sector in a labor market with search frictions. The wage distribution and the employment rate in the public sector are taken as exogenous policy parameters. Overall wage distribution and employment rate are determined within the model, taking into account the private sector's endogenous response to public sector employment policies. Job turnover is sector specific and transitions between sectors depend on the worker's decision to accept alternative employment in the same or different sector by comparing the value of employment in the current and prospective jobs. The model is estimated on British data by a method of moments. We use the model to simulate the impact of various counterfactual public sector wage and employment policies.

Suggested Citation

  • Jake Bradley & Fabien Postel-Vinay & Hélène Turon, 2014. "Public Sector Wage Policy and Labor Market Equilibrium: A Structural Model," Working Papers hal-03429904, HAL.
  • Handle: RePEc:hal:wpaper:hal-03429904
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03429904
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    References listed on IDEAS

    as
    1. Costas Meghir & Renata Narita & Jean-Marc Robin, 2015. "Wages and Informality in Developing Countries," American Economic Review, American Economic Association, vol. 105(4), pages 1509-1546, April.
    2. Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public employment and labour market performance [‘On the benefits from rigid labour markets: Norms, market failures and social insurances’]," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 7-66.
    3. James Albrecht & Monica Robayo-Abril & Susan Vroman, 2019. "Public-sector Employment in an Equilibrium Search and Matching Model," The Economic Journal, Royal Economic Society, vol. 129(617), pages 35-61.
    4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, February.
    5. Fabien Postel-Vinay & Hélène Turon, 2007. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," Economic Journal, Royal Economic Society, vol. 117(523), pages 1460-1503, October.
    6. repec:spo:wpecon:info:hdl:2441/8846 is not listed on IDEAS
    7. Keith A. Bender, 1998. "The Central Government‐Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Employment rate; Public sector; Labour market; Policy market;
    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
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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