Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers

Jan Brueckner and David Neumark

No 16797, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The absence of a competitive market may enable public-sector workers to extract rents from taxpayers in the form of high pay, especially when public-sector workers are unionized. On the other hand, this rent extraction may be suppressed by the ability of taxpayers to vote with their feet, leaving jurisdictions where public-sector workers extract high rents. However, although migration of taxpayers may limit rent-seeking, public-sector workers may be able to extract higher rents in regions where high amenities mute the migration response. We develop a theoretical model that predicts such a link between public-sector wage differentials and local amenities, and we test the model's predictions by analyzing variation in these wage differentials and amenities across states. We find that public-sector wage differentials are, in fact, larger in the presence of high amenities, with the effect stronger for unionized public-sector workers who are likely better able to exercise political power in extracting rents. The implication is that the mobility of taxpayers is insufficient to prevent rent-seeking behavior of public-sector workers from leading to higher public-sector pay.

JEL-codes: J45 J48 J61 R10 (search for similar items in EconPapers)
Date: 2011-02
New Economics Papers: this item is included in nep-lab, nep-mig and nep-ure
Note: LS
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Brueckner, Jan, and David Neumark, “Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers,” forthcoming in American Economic Journal: Economic Policy.

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Related works:
Journal Article: Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers (2014)
Working Paper: Beaches, sunshine, and public-sector pay: theory and evidence on amenities and rent extraction by government workers (2011)
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