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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.

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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
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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
Note: LS
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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
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Cited by:

  1. Lutgen, Vanessa & Van der Linden, Bruno, 2013. "Regional Equilibrium Unemployment Theory at the Age of the Internet," IZA Discussion Papers 7763, Institute for the Study of Labor (IZA).
  2. Tonin, Mirco & Vlassopoulos, Michael, 2014. "Are Public Sector Workers Different? Cross-European Evidence from Elderly Workers and Retirees," IZA Discussion Papers 8238, Institute for the Study of Labor (IZA).
  3. 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.
  4. Matthew E. Kahn & Randall Walsh, 2014. "Cities and the Environment," NBER Working Papers 20503, National Bureau of Economic Research, Inc.
  5. Alexandre Mas, 2014. "Does Transparency Lead to Pay Compression?," NBER Working Papers 20558, National Bureau of Economic Research, Inc.

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