Local Public Sector Wages, the Local Fiscal Environment, andTheir Effects on Land Values

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The last thirty years have witnessed dramatic changes in public sector labor markets. Since the 1950's, the local public sector has grown rapidly in size and become increasingly unionized. This transformation has prompted considerable research on local public labor markets emphasizing the impact that unions have had on employment, wages, and productivity in the public sector. A shortcoming of many of these studies is their failure to adequately recognize that public sector compensation is set within a broader context of a local budgetary process. As a result, the full influence of local economic conditions, the fiscal environment in particular, on public wages has not been captured. Potentially important city-specific traits helping influence the level and pattern of local public wages have been omitted from previous wage/earnings specifications. The contribution of this project comes from reestimating local public wage equations on a variety of data and from testing for the importance of the neglected local fiscal variables. These variables include proxies for the community's "ability to pay" wage premia to public workers and measures of the "bargaining power" of the local workers, i.e., their ability to appropriate local rents. In addition, the project investigates the degree to which measured local public wage differentials are reflected in lower land prices in the communities.