Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142404
Authors: 
Boeing-Reicher, Claire A.
Caponi, Vincenzo
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9965
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.
Subjects: 
public employment
public wages
business cycle volatility
crowding out
search and matching
JEL: 
E32
E63
J21
Document Type: 
Working Paper

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