Government Employment and Wages and Labor Market Performance

Zenon Kontolemis () and Dimitri Demekas

No 1999/055, IMF Working Papers from International Monetary Fund

Abstract: Government wage, benefit, and employment decisions are not taken on a profit-maximizing basis and have a substantial impact on aggregate labor market performance and unemployment. In a two-sector labor market model with free mobility of labor, an increase in government wages or benefits reduces private sector employment, and government employment is not an effective counter-cyclical instrument. Empirical tests for Greece confirm that the expansion of the public sector in the 1980s contributed to the deterioration of labor market performance.

Keywords: WP; private sector; labor market; wage differential; Unemployment; wage differentials; public sector labor markets; private sector employer; labor market performance; populist tendency; government policy; equilibrium condition; private sector employment; employment decision; production function; government hiring; government act; reaction function; government sector Lg; Labor markets; Wages; Employment; Public employment; Europe (search for similar items in EconPapers)
Pages: 29
Date: 1999-04-01
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Citations: View citations in EconPapers (8)

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Journal Article: Government Employment and Wages and Labour Market Performance (2000)
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