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- Title
Optimal Public Sector Wages.
- Authors
Gomes, Pedro
- Abstract
I build a dynamic stochastic general equilibrium model with search and matching frictions to determine the optimal public sector wage policy. Public sector wages are crucial in achieving efficient allocation of jobs. High wages induce too many unemployed to queue for public sector jobs, in turn raising unemployment. The optimal wage depends on the frictions in the two sectors. Following technology shocks, public sector wages should be pro-cyclical and deviations from the optimal policy significantly increase the volatility of unemployment.
- Subjects
UNITED States; PUBLIC sector &; economics; WAGE theory; EFFECT of wages on unemployment; FISCAL policy; EMPLOYMENT; MARKET volatility
- Publication
Economic Journal, 2015, Vol 125, Issue 587, p1425
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/ecoj.12155