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A Model of Market and Political Power Interactions for Southern Europe

Tryphon Kollintzas (), Dimitris Papageorgiou () and Vanghelis Vassilatos ()

No 10359, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In recent years the growth pattern of most Southern European countries has been disturbed, as those countries are suffering from economic crises that go beyond the usual business cycle. In this paper, we develop a dynamic general equilibrium model of market and political power interactions that explains this growth reversal. Moreover, the model is consistent with several stylized facts of those countries, where wages in the public sector relative to the private sector are high and these wage differentials correlate negatively with public sector employment over total employment, total factor productivity, and output growth. The model is a synthesis of the insiders-outsiders labor market structure and the concept of an elite government. Outsiders form a group of workers that supply labor to a competitive private sector. And, insiders form a group of workers that enjoy market power in supplying labor to the public sector and influence the policy decisions of government, including those that affect the development and maintenance of public sector infrastructures.

Keywords: Growth; Insiders - Outsiders; Politicoeconomic Equilibrium; Public Sector Wage Premium; Southern European Economies (search for similar items in EconPapers)
JEL-codes: J45 O43 O52 P16 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-dge and nep-pol
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