Government Employment and Wages and Labor Market Performance

ByZenon Kontolemis, Dimitri G Demekas

April 1, 1999

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Employment, Labor, Labor markets, Public employment, Public sector wages, Unemployment, Wages

Keywords: Employment, employment decision, equilibrium condition, Europe, government act, government hiring, government policy, government sector Lg, labor market, labor market performance, Labor markets, populist tendency, private sector, private sector employer, private sector employment, production function, Public employment, public sector labor markets, reaction function, Unemployment, wage differential, wage differentials, Wages, WP

Pages:
29
Volume:
1999
DOI:
https://doi.org/10.5089/9781451847604.001
Issue:
055
Series:
Working Paper No. 1999/055
Stock No:
WPIEA0551999
ISBN:
9781451847604
ISSN:
1018-5941

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