Employment in the Public Sector

Lorenzo Forni and Raffaela Giordano ()

No 1085, CESifo Working Paper Series from CESifo

Abstract: This paper presents a model of wage-employment determination in private and public sectors, which allows us to analyze the effects of different institutional arrangements on labor market equilibria. In particular, it focuses on how different degrees of coordination in decision processes affect hiring and wage setting outcomes. Cooperation in unions’ behavior results in wage increases and employment reduction in the private sector, whereas it induces wage moderation and employment expansion in the public sector. Not surprisingly, if public decision units do not fully internalize the aggregate budget constraint in their hiring processes, the public sector wage bill and the level of taxation increase, thus enhancing the crowding out effect on private employment. Such effect appears to be stronger in the presence of encompassing union behavior. An empirical analysis performed on a sample of OECD countries in the period 1960-2000 seems to support the main predictions of the model.

Keywords: public employment; wage bargaining; decentralization (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-eec, nep-lab and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1085

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