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

Author Info

Listed author(s):
  • 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.

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File URL: http://www.nber.org/papers/w16797.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16797.

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Date of creation: Feb 2011
Publication status: published as Brueckner, Jan, and David Neumark, “Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers,” forthcoming in American Economic Journal: Economic Policy.
Handle: RePEc:nbr:nberwo:16797
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Find related papers by 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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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Two Photos Explain Why Coastal California Continues to Be #1
    by Matthew Kahn in Environmental and Urban Economics on 2014-11-23 19:50:00
  2. In Praise of David Neumark
    by Adam Ozimek in Modeled Behavior on 2015-07-30 00:07:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:

  1. Mirco Tonin & Michael Vlassopoulos, 2015. "Are public sector workers different? Cross-European evidence from elderly workers and retirees," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-21, December.
  2. 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.
  3. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
  4. Rickman, Dan S. & Wang, Hongbo & Winters, John V., 2015. "Adjusted State Teacher Salaries and the Decision to Teach," IZA Discussion Papers 8984, Institute for the Study of Labor (IZA).
  5. Brülhart, Marius, 2014. "Agglomeration economies, taxable rents, and government capture: evidence from a place-based policy," Papers 835, World Trade Institute.
  6. 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.
  7. Alexandre Mas, 2014. "Does Transparency Lead to Pay Compression?," NBER Working Papers 20558, National Bureau of Economic Research, Inc.
  8. 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.
  9. Firth, Michael & Gong, Stephen X. & Shan, Liwei, 2013. "Cost of government and firm value," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 136-152.
  10. 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.
  11. 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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