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Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers

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  • Jan K. Brueckner
  • David Neumark

Abstract

The absence of a competitive market may enable public-sector workers to extract rents from taxpayers in the form of high pay, especially when public-sector workers are unionized. On the other hand, this rent extraction may be suppressed by the ability of taxpayers to vote with their feet, leaving jurisdictions where public-sector workers extract high rents. However, although migration of taxpayers may limit rent-seeking, public-sector workers may be able to extract higher rents in regions where high amenities mute the migration response. We develop a theoretical model that predicts such a link between public-sector wage differentials and local amenities, and we test the model's predictions by analyzing variation in these wage differentials and amenities across states. We find that public-sector wage differentials are, in fact, larger in the presence of high amenities, with the effect stronger for unionized public-sector workers who are likely better able to exercise political power in extracting rents. The implication is that the mobility of taxpayers is insufficient to prevent rent-seeking behavior of public-sector workers from leading to higher public-sector pay.

Suggested Citation

  • Jan K. Brueckner & David Neumark, 2011. "Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers," NBER Working Papers 16797, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16797
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    References listed on IDEAS

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    Blog mentions

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    1. Two Photos Explain Why Coastal California Continues to Be #1
      by Matthew Kahn in Environmental and Urban Economics on 2014-11-24 01:50:00
    2. In Praise of David Neumark
      by Adam Ozimek in Modeled Behavior on 2015-07-30 05:07:00

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    Cited by:

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    2. Matthew E. Kahn & Joseph Tracy, 2019. "Monopsony in Spatial Equilibrium," Working Papers 1912, Federal Reserve Bank of Dallas.
    3. Rickman, Dan S. & Wang, Hongbo & Winters, John V., 2015. "Adjusted State Teacher Salaries and the Decision to Teach," IZA Discussion Papers 8984, Institute of Labor Economics (IZA).
    4. Jerch, Rhiannon & Kahn, Matthew E. & Li, Shanjun, 2017. "The efficiency of local government: The role of privatization and public sector unions," Journal of Public Economics, Elsevier, vol. 154(C), pages 95-121.
    5. Ruben Enikolopov, 2011. "Are Bureaucrats Really Paid Like Bureaucrats?," Working Papers w0165, Center for Economic and Financial Research (CEFIR).
    6. Marius Brülhart & Helen Simpson, 2018. "Agglomeration economies, taxable rents and government capture: evidence from a place-based policy," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 319-353.
    7. Eric Brunner & Joshua Hyman & Andrew Ju, 2020. "School Finance Reforms, Teachers' Unions, and the Allocation of School Resources," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 473-489, July.
    8. Lutgen, Vanessa & Van der Linden, Bruno, 2015. "Regional equilibrium unemployment theory at the age of the Internet," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 50-67.
    9. Alexandre Mas, 2017. "Does Transparency Lead to Pay Compression?," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1683-1721.
    10. Rebecca Diamond, 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 74-111, February.
    11. Jan Brueckner & Matthew E. Kahn & Gary C. Lin, 2021. "A New Spatial Hedonic Equilibrium in the Emerging Work-from-Home Economy?," NBER Working Papers 28526, National Bureau of Economic Research, Inc.
    12. Andrew Chamberlain, 2015. "Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State," Journal of Labor Research, Springer, vol. 36(4), pages 347-388, December.
    13. Wataru Takahashi, 2021. "Population Mobility Structural Analysis and Population Estimation Using a Quantitative Spatial Model," Discussion papers ron339, Policy Research Institute, Ministry of Finance Japan.
    14. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 405-465, Elsevier.
    15. Matthew Davis & Fernando V. Ferreira, 2017. "Housing Disease and Public School Finances," NBER Working Papers 24140, National Bureau of Economic Research, Inc.
    16. Peter McHenry & Melissa McInerney, 2014. "The Importance of Cost of Living and Education in Estimates of the Conditional Wage Gap Between Black and White Women," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 695-722.
    17. Brunner, Eric J. & Johnson, Erik B., 2016. "Intergenerational conflict and the political economy of higher education funding," Journal of Urban Economics, Elsevier, vol. 91(C), pages 73-87.

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    More about this item

    JEL classification:

    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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