Labour Costs and the Size of Government

François Facchini (), Mickael Melki and Andrew Pickering
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François Facchini: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Given inelastic demand for labour‐intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business‐sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post‐war era.

Keywords: Public spending; Baumol Law and Labor Share; Size of government; Labour share; Dépenses publiques; Loi de Baumol; Part du travail dans la valeur ajoutée (search for similar items in EconPapers)
Date: 2016
Note: View the original document on HAL open archive server: https://hal.science/hal-01344639v1
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Published in Oxford Bulletin of Economics and Statistics, 2016, 79 (2), pp.251-275. ⟨10.1111/obes.12140⟩

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Related works:
Journal Article: Labour Costs and the Size of Government (2017)
Working Paper: Labour Costs and the Size of Government (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01344639

DOI: 10.1111/obes.12140

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