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Optimal Public Sector Employment Policy with Endogenous Involuntary Unemployment


  • Robin Boadway
  • Maurice Marchand
  • Pierre Pestieau


This paper analyzes optimal employment and wage policies in the public sector in a model with endogenous involuntary unemployment. A public sector is introduced into models where shirking or turnover costs are present, and optimal wage and employment policies are derived. In both models, the shadow wage generally differs from the market wage, but it may be either higher or lower depending upon the parameters of the problem and whether or not there is free entry in the private sector. Once wage subsidies are allowed as a policy instrument, the case for an active employment policy vanishes in the turnover case but not in the shirking case.

Suggested Citation

  • Robin Boadway & Maurice Marchand & Pierre Pestieau, 1988. "Optimal Public Sector Employment Policy with Endogenous Involuntary Unemployment," Working Papers 736, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:736

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    Cited by:

    1. De Borger, Bruno, 1995. "The behavior of public enterprises offering a quasi-public good," European Journal of Political Economy, Elsevier, vol. 11(2), pages 265-290, June.

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