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Public Employment Redux

Author

Listed:
  • Garibaldi, Pietro

    (University of Turin)

  • Gomes, Pedro Maia

    (Birkbeck, University of London)

  • Sopraseuth, Thepthida

    (University of 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

  • Garibaldi, Pietro & Gomes, Pedro Maia & Sopraseuth, Thepthida, 2019. "Public Employment Redux," IZA Discussion Papers 12871, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12871
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    References listed on IDEAS

    as
    1. Fontaine, Idriss & Gálvez-Iniesta, Ismael & Gomes, Pedro & Vila-Martin, Diego, 2020. "Labour market flows: Accounting for the public sector," Labour Economics, Elsevier, vol. 62(C).
    2. repec:fth:prinin:282 is not listed on IDEAS
    3. Pascal Michaillat & Emmanuel Saez, 2015. "Aggregate Demand, Idle Time, and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 507-569.
    4. Louis Christofides & Maria Michael, 2013. "Exploring the public-private sector wage gap in European countries," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-53, December.
    5. Pedro Gomes & Zoe Kuehn, 2017. "Human capital and the size distribution of firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 164-179, October.
    6. Lawrence Katz & Alan Krueger, 1991. "Changes in the Structure of Wages in the Public and Private Sectors," Working Papers 662, Princeton University, Department of Economics, Industrial Relations Section..
    7. Brian Clark & Clément Joubert & Arnaud Maurel, 2017. "The career prospects of overeducated Americans," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-29, December.
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    Full references (including those not matched with items on IDEAS)

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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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