Government Employment and Wages and Labor Market Performance

Demekas, Dimitri G.; Kontolemis, Zenon G.

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Government Employment and Wages and Labor Market Performance

IMF Working Paper No. 99/55

29 Pages Posted: 13 Feb 2006

See all articles by Dimitri G. Demekas

Dimitri G. Demekas

School of Public Policy, LSE; International Finance Corporation, World Bank Group

Zenon G. Kontolemis

European Union - European Commission

Date Written: April 1999

Abstract

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.

Keywords: Unemployment, wage differentials, public sector labor markets

JEL Classification: D72, H31, J31, J45, J64

Suggested Citation: Suggested Citation

Demekas, Dimitri G. and Kontolemis, Zenon G., Government Employment and Wages and Labor Market Performance (April 1999). IMF Working Paper No. 99/55, Available at SSRN: https://ssrn.com/abstract=880582