Public employment and labour market performance : centralization wage setting effects
This paper studies the interactions between the centralization in wage bargaining and the consequences of public employment for labour market performance. We use a monopoly union model and focus on the fiscal externalities of the wage setting process. Our model suggests that public jobs crowd out private jobs through an increase in wage pressure, only when the wage setting takes place at the firm level. Public jobs Creation entails tax increases. In a decentralized wage setting, the tax increases diminish the marginal value of employment, because each job gives rise to a lower net income. Accordingly, when labour taxes rise, trade unions choose to increase wages at the expense of employment. When the wage setting is centralized, trade unions take into account the government budget constraint when they evaluate the marginal value of employment. In this context, public jobs Creation does not change the trade-off between wage and employment, and thus, does not entail any increase in wages. Empirical evidence from a sample of 11 OECD countries over the period 1960-1995 confirms that the crowding-out effect is statistically significant only in countries in which the wage setting is decentralized.
|Date of creation:||Apr 2004|
|Date of revision:|
|Contact details of provider:|| Postal: 106 - 112 boulevard de l'Hôpital, 75647 Paris cedex 13|
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Web page: http://mse.univ-paris1.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Demekas, Dimitri G & Kontolemis, Zenon G, 2000.
" Government Employment and Wages and Labour Market Performance,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 62(3), pages 391-415, July.
- Zenon Kontolemis & Dimitri G Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 99/55, International Monetary Fund.
- repec:sae:niesru:v:115:y::i:1:p:52-63 is not listed on IDEAS
- Daniele Checchi & Claudio Lucifora, 2002.
"Unions and labour market institutions in Europe,"
CEPR;CES;MSH, vol. 17(35), pages 361-408, October.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999.
"The Quality of Government,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 15(1), pages 222-79, April.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1998. "The Quality of Goverment," NBER Working Papers 6727, National Bureau of Economic Research, Inc.
- Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
- McCallum, John, 1985. " Wage Gaps, Factor Shares and Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 436-59.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002.
"Public Employment and Labor Market Performances,"
Sciences Po publications
info:hdl:2441/8846, Sciences Po.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public Employment and Labor Market Performances," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01017844, HAL.
- Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public employment and labor market performances," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00256207, HAL.
- Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
- Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002.
"Does Active Labour Market Policy Work? Lessons from the Swedish Experiences,"
700, Stockholm University, Institute for International Economic Studies.
- Lars Calmfors & Anders Forslund & Maria Hemström, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," CESifo Working Paper Series 675, CESifo Group Munich.
- Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does active labour market policy work? Lessons from the Swedish experiences," Working Paper Series 2002:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
- McCallum, John, 1983. "Inflation and Social Consensus in the Seventies," Economic Journal, Royal Economic Society, vol. 93(372), pages 784-805, December.
- Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
- Blanchard, Olivier & Wolfers, Justin, 2000.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
Royal Economic Society, vol. 110(462), pages C1-33, March.
- Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
- Jim Malley & Thomas Moutos, .
"Government Employment and Unemployment: With One Hand Giveth, The Other Taketh,"
9709, Business School - Economics, University of Glasgow, revised May 1998.
- Jim Malley & Thomas Moutos, . "Government Employment and Unemployment: With One Hand Giveth, the Other Taketh," ICMM Discussion Papers 47, Department of Economics University of Strathclyde.
- Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
- Mulder, C B, 1993.
"Wage-Moderating Effects of Corporatism: Decentralized versus Centralized Wage Setting in a Union, Firm, Government Context,"
The Manchester School of Economic & Social Studies,
University of Manchester, vol. 61(3), pages 287-301, September.
- Mulder, C.B., 1988. "Wage moderating effects of corporatism : Decentralized versus centralized wage setting in a union, firm, government context," Research Memorandum FEW 316, Tilburg University, School of Economics and Management.
- Holmlund, Bertil & Linden, Johan, 1993.
"Job matching, temporary public employment, and equilibrium unemployment,"
Journal of Public Economics,
Elsevier, vol. 51(3), pages 329-343, July.
- Holmlund, B. & Linden, J., 1991. "Job Matching, Temporary Public Employment, and Equilibrium Unemployment," Papers 1991l, Uppsala - Working Paper Series.
- Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, vol. 105(430), pages 601-19, May.
- Brunner, Karl & Cukierman, Alex & Meltzer, Allan H., 1980. "Stagflation, persistent unemployment and the permanence of economic shocks," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 467-492, October.
- Ehrenberg, Ronald G. & Schwarz, Joshua L., 1987.
"Public-sector labor markets,"
Handbook of Labor Economics,
in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 22, pages 1219-1260
- Holmlund, B., 1991.
"Wage Setting in Private and Public Sectors in a Model with Endogenous Government Behavior,"
1991i, Uppsala - Working Paper Series.
- Holmlund, Bertil, 1993. "Wage setting in private and public sectors in a model with endogenous government behavior," European Journal of Political Economy, Elsevier, vol. 9(2), pages 149-162, May.
- Musgrave, R.A., 1985. "A brief history of fiscal doctrine," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 1, pages 1-59 Elsevier.
- Dani Rodrik, 1997. "What Drives Public Employment?," NBER Working Papers 6141, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:mse:wpsorb:v04036. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label)
If references are entirely missing, you can add them using this form.