Labour market flows: Accounting for the public sector

Abstract

[eng] In most European economies, around 20 percent of all workers are employed by the government. Government hire workers to produce goods and services. However, governments face different constraints than private-sector firms and are not driven by profit maximization. Hence, government employment and wage policies are driven by other objectives including: attaining budgetary targets ( Gyourko and Tracy, 1989; Poterba and Rueben, 1998 ); implementing macroeconomic stabi- lization policy ( Holm-Hadulla et al., 2010; Keynes, 1936; Lamo et al., 2013 ); redistributing resources ( Alesina et al., 2000; 1999; Wilson, 1982 ); or satisfying interest groups for electoral gains ( Borjas, 1984; Gelb et al., 1991; Matschke, 2003 ). As a consequence, public-sector labour markets might behave differently from their private-sector coun- terparts.