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Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas

Author

Listed:
  • Boeing-Reicher, Claire A.

    (Kiel Institute for the World Economy)

  • Caponi, Vincenzo

    (CREST)

Abstract

Based on data from a cross section of U.S. metro areas, we show that public employment correlates negatively with business cycle volatility, hinting at a stabilizing effect of public employment, while public wages correlate weakly and positively with business cycle volatility, hinting at a destabilizing effect of public wages. To explain these relationships, we set up a search and matching model that contains a government sector and a role for government spending in product markets. This latter mechanism affects how the outside option behaves, and this mechanism can help a search and matching model to generate wage-reducing and stabilizing effects of public employment. Without this mechanism, a search and matching model cannot generate these effects.

Suggested Citation

  • Boeing-Reicher, Claire A. & Caponi, Vincenzo, 2016. "Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas," IZA Discussion Papers 9965, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9965
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    References listed on IDEAS

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    Cited by:

    1. Fontaine, Idriss & Gálvez-Iniesta, Ismael & Gomes, Pedro & Vila-Martin, Diego, 2020. "Labour market flows: Accounting for the public sector," Labour Economics, Elsevier, vol. 62(C).
    2. Caponi, Vincenzo, 2017. "Public employment policies and regional unemployment differences," Regional Science and Urban Economics, Elsevier, vol. 63(C), pages 1-12.
    3. Rattsø, Jørn & Stokke, Hildegunn E., 2019. "Identification of the private-public wage gap," Labour Economics, Elsevier, vol. 59(C), pages 153-163.
    4. Vincenzo Caponi & Simone Nobili, 2024. "The effects of public sector employment on the economy," IZA World of Labor, Institute of Labor Economics (IZA), pages 3322-3322, June.
    5. Alberto Chong & Angelo Cozzubo, 2019. "Perverse Incentives? Labor Market Regulation and Performance in the Public Sector," Southern Economic Journal, John Wiley & Sons, vol. 86(1), pages 271-285, July.
    6. Nalban, Valeriu & Smădu, Andra, 2021. "The interaction between private sector and public sector labor markets: Evidence from Romania," Economic Modelling, Elsevier, vol. 94(C), pages 804-821.

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    More about this item

    Keywords

    search and matching; crowding out; business cycle volatility; public wages; public employment;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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