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The Labor Share and the Size of Government

Author

Listed:
  • François Facchini
  • Mickael Melki
  • Andrew Pickering

Abstract

The size of government depends positively on the labor share given price-inelastic demand for public services. OECD data support this hypothesis and also show a stronger dependence under left-wing ideology because larger government employs a larger workforce. A permanent one standard deviation increase in the labor share is found on average to increase government size by about 9% of GDP, with increases of 6% in right-wing countries and 12% in left-wing countries. Contrary to Baumol's cost-disease the relationship is estimated to be independent of income. Recent reductions in the labor-share have substantially slowed the growth of government in many countries.

Suggested Citation

  • François Facchini & Mickael Melki & Andrew Pickering, 2013. "The Labor Share and the Size of Government," Discussion Papers 13/02, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:13/02
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    References listed on IDEAS

    as
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How the wage squeeze helps the Tories
      by chris dillow in Stumbling and Mumbling on 2013-02-09 19:36:20
    2. On the causality between the labor income share and the size of governments
      by Economic Logician in Economic Logic on 2013-02-14 21:17:00

    More about this item

    Keywords

    Size of government; labor share; Baumol's cost disease;

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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