Direct Democracy and Public Employees

John Matsusaka

American Economic Review, 2009, vol. 99, issue 5, 2227-46

Abstract: In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, ameliorates these political economy problems. In a sample of 650+ cities, I find that when public employees cannot bargain collectively and patronage could be a problem, initiatives appear to cut employment but not wages. When public employees bargain collectively, driving up wages, the initiative appears to cut wages but not employment. The employment-cutting result is robust; the wage-cutting result survives some but not all robustness tests. (JEL D72, J31, J45, J52)

JEL-codes: D72 J31 J45 J52 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.5.2227
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Citations: View citations in EconPapers (21)

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