Government Employment and Wages and Labor Market Performance
29 Pages Posted: 13 Feb 2006
Date Written: April 1999
Government wage, benefit, and employment decisions are not taken on a profit-maximizing basis and have a substantial impact on aggregate labor market performance and unemployment. In a two-sector labor market model with free mobility of labor, an increase in government wages or benefits reduces private sector employment, and government employment is not an effective counter-cyclical instrument. Empirical tests for Greece confirm that the expansion of the public sector in the 1980s contributed to the deterioration of labor market performance.
Keywords: Unemployment, wage differentials, public sector labor markets
JEL Classification: D72, H31, J31, J45, J64
Suggested Citation: Suggested Citation