Does slack influence public and private labour market interactions?

Ana Lamo, Enrique Moral-Benito and Javier Pérez

No 1605, Working Papers from Banco de España

Abstract: We empirically analyse the impact of public employment and public wages shocks on private labour market outcomes by examining whether policies operate differently in periods of economic slack than in normal times. We use local projection methods and focus on the Spanish and euro area aggregate cases. We find that the degree of unemployment slack is key for determining: (i) whether public employment crowds out private employment, and (ii) the degree and extent of the influence of public wages on the private sector. In addition, we find that at times of economic distress, public wage adjustment has lower output costs than public employment cuts for the Spanish case, while the opposite occurs at the euro area level. We conjecture that differences in the degree of wage rigidities and the size of the unemployment pool may rationalise our findings

Keywords: public employment; wages; unemployment; fiscal policies. (search for similar items in EconPapers)
JEL-codes: C3 C82 E62 E65 H6 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-03
New Economics Papers: this item is included in nep-eec, nep-eur and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Does slack influence public and private labor market interactions? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1605

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