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439 - Fiscal policy and the labour market: the effects of public sector employment and wages

Pedro Gomes, Universidad Carlos III de Madrid

Fiscal policy and the labour market: the effects of public sector employment and wagespdf(2 MB) Choose translations of the previous link 

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I build a dynamic stochastic general equilibrium model with search and matching frictions in order to study the labour market effects of public sector employment and wages. Public sector wages are important to achieve the effcient allocation. High wages induce too many unemployed to queue for public sector jobs, raising unemployment. Following technology shocks, public sector wages should be procyclical and deviations from the optimal policy increase the volatility of unemployment significantly. Another conclusion is that different types of fiscal shocks have opposite effects on labour market variables. I then estimate the parameters of the model for the United States

(European Economy. Economic Papers. 439. February 2011. Brussels. PDF. 60pp. Tab. Graph. Bibliogr. Free.)

KC-AI-11- 439-EN (online)
ISBN 978-92-79-14925-2 (online)
doi:10.2765/48683 (online)

JEL classification: E24; E62; J45

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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