Fiscal policy and the labour market: the effects of public sector employment and wages

Pedro Gomes

No 439, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: I build a dynamic stochastic general equilibrium model with search and matching frictions in order to study the labour market effects of public sector employment and wages. Public sector wages are important to achieve the effcient allocation. High wages induce too many unemployed to queue for public sector jobs, raising unemployment. Following technology shocks, public sector wages should be procyclical and deviations from the optimal policy increase the volatility of unemployment significantly. Another conclusion is that different types of fiscal shocks have opposite effects on labour market variables. I then estimate the parameters of the model for the United States

JEL-codes: E24 E62 J45 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2011-02
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Fiscal Policy and the Labour Market: The Effects of Public Sector Employment and Wages (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0439

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