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Government Employment and Wages and Labor Market Performance

29 Pages Posted: 13 Feb 2006  

Dimitri G. Demekas

Zenon G. Kontolemis

International Monetary Fund (IMF)

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

Demekas, Dimitri G. and Kontolemis, Zenon G., Government Employment and Wages and Labor Market Performance (April 1999). IMF Working Paper, Vol. , pp. 1-29, 1999. Available at SSRN: https://ssrn.com/abstract=880582

Zenon G. Kontolemis

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

No contact information is available for Dimitri G. Demekas

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