The Labor Share and the Size of Government

François Facchini, Mickael Melki and Andrew Pickering

Discussion Papers from Department of Economics, University of York

Abstract: The size of government depends positively on the labor share given price-inelastic demand for public services. OECD data support this hypothesis and also show a stronger dependence under left-wing ideology because larger government employs a larger workforce. A permanent one standard deviation increase in the labor share is found on average to increase government size by about 9% of GDP, with increases of 6% in right-wing countries and 12% in left-wing countries. Contrary to Baumol's cost-disease the relationship is estimated to be independent of income. Recent reductions in the labor-share have substantially slowed the growth of government in many countries.

Keywords: Size of government; labor share; Baumol's cost disease (search for similar items in EconPapers)
JEL-codes: H10 H50 O41 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-dem and nep-pbe
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Citations: View citations in EconPapers (1)

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