Public and private sector wages interactions in a general equilibrium model

Gonzalo Fernandez-de-Cordoba, Javier Pérez and Jose Torres ()

No 1099, Working Paper Series from European Central Bank

Abstract: This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector. JEL Classification: C32, J30, J51, J52, E62, E63, H50

Keywords: labor market; public employment; public wages; Trade Unions (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-dge and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1099.pdf (application/pdf)

Related works:
Journal Article: Public and private sector wages interactions in a general equilibrium model (2012)
Working Paper: Public and private sector wages interactions in a general equilibrium model (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091099

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().