Public-Sector Compensation over the Life Cycle

37 Pages Posted: 30 Mar 2020

See all articles by Pedro Gomes

Pedro Gomes

University of London - Economics, Mathematics and Statistics; Universidad Carlos III de Madrid

Felix Wellschmied

Universidad Carlos III de Madrid

Abstract

The size of the public sector in terms of employment and compensation has a strong life-cycle dimension. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, private and public sectors, and risk-averse workers, and use it to (i) calculate three dimensions of public-sector compensation: wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the compensation in the two sectors. We find that the job-security and pension's premia are important forms of compensation to public-sector workers. Harmonizing the characteristics of public employment with those of the private sector would lower the unemployment rate and reduce government costs.

Keywords: public-sector employment, public-sector wages, life cycle, unemployment, retirement, pensions, job security

JEL Classification: J45, E24, H30, H55

Suggested Citation

Gomes, Pedro M. and Wellschmied, Felix, Public-Sector Compensation over the Life Cycle. IZA Discussion Paper No. 13042, Available at SSRN: https://ssrn.com/abstract=3562832

Pedro M. Gomes (Contact Author)

University of London - Economics, Mathematics and Statistics ( email )

United States

HOME PAGE: http://www.eco.uc3m.es/~pgomes/

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Felix Wellschmied

Universidad Carlos III de Madrid ( email )

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