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Does Slack Influence Public and Private Labor Market

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  • Javier J. Perez
  • Ana Lamo
  • Enrique Moral-Benito

Abstract

We analyze the impact of public employment and wages’ policies on private labor market outcomes, in particular taking due account of the state of the economy. The literature has stressed, on the one hand, the “crowding-out” of private employment by public employment and, on the other, the signalling effect of public wages over private sector wages. These channels may operate differently in recessions than in expansions, and in high-unemployment instances than in normal times. We account for this possibility by means of, first, non-linear STVAR models and, second, local projection methods. We focus on Spanish and euro area aggregate data. Our results show that indeed allowing different reactions in different states of the economy is crucial for understanding the labor market impact of public employment and wages’ policy actions. In particular, we find that the degree of unemployment slack is key to determine if public employment crowds-out or crowds-in private employment. See above See above

Suggested Citation

  • Javier J. Perez & Ana Lamo & Enrique Moral-Benito, 2015. "Does Slack Influence Public and Private Labor Market," EcoMod2015 8792, EcoMod.
    • Handle: RePEc:ekd:008007:8792
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    References listed on IDEAS

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    Cited by:

    1. Francisco Martí & Javier J. Pérez, 2015. "Spanish Public Finances through the Financial Crisis," Fiscal Studies, Institute for Fiscal Studies, vol. 36, pages 527-554, December.
    2. Guilherme Bandeira & Evi Pappa & Rana Sajedi & Eugenia Vella, 2018. "Fiscal Consolidation in a Low-Inflation Environment: Pay Cuts versus Lost Jobs," International Journal of Central Banking, International Journal of Central Banking, vol. 14(3), pages 7-52, June.

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