Beaches, sunshine, and public-sector pay: theory and evidence on amenities and rent extraction by government workers

Jan Brueckner and David Neumark

No 2011/42, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: The absence of a competitive market and the presence and strength of public-sector labor unions make it likely that public-sector pay reflects an element of rent extraction by government workers. In this paper, we test a specific hypothesis that connects such rent extraction to the level of local amenities. Specifically, although migration of taxpayers limits the extent of 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. The evidence reveals that public-sector wage differentials are, in fact, larger in the presence of high amenities, with the effect being stronger for unionized public-sector workers, who are likely better able to exercise political power in extracting rents.

Keywords: Public-sector pay; unions; amenities (search for similar items in EconPapers)
JEL-codes: J3 J45 R12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers (2014)
Working Paper: Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2011-42

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