The Political Economy of Public Sector Employment

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This project involves research on three sets of questions in political economy: the determinants of state and local public sector employment and wages; the determinants and evolution of institutions governing public sector bargaining; and the measurement of the social welfare cost associated with political behavior in public sector labor markets. The goal is to use public sector labor markets to learn more about the functioning of state and local governments more broadly. The extent to which political considerations influence public sector employment and earnings in the U.S. states is determined. Several aspects of this question are addressed by building models of the behavior of politicians, voters and public sector workers, and taking these models to the data. To begin, the aim is to explain the presence of electoral cycles in state and local public sector employment. The extent to which politicians gain by changing the employment and earnings of government workers prior to an election is determined. Votes appear to be influenced by changes in the level of government bureaucracies in the period just prior to an election, and one goal is to explain why this phenomenon exists. Public sector labor markets have their own institutions and laws governing bargaining. These laws have been evolving, state by state, for the past 40 years. Institutions develop for both political and economic reasons, and the authors are studying the determinants of the institutions within which state and local bargains are struck. An understanding of the evolution of institutions is important in its own right, and may help in analyzing the impact of labor laws. Public sector employment, together with individuals' and politicians' behavior, is analyzed using a 45 year panel of data collected on U.S. states (1950 1995). These data are augmented with data from the NBER Public Sector Collective Bargaining Law Data Set, which provides information on the bargaining environment for five types of public sector employees (state, police, fire, teacher, other) for each state from 1955 1985. These data are also augmented with information on public sector employment and earnings from the Census Bureau. The authors currently have data on state full-time employees, local full-time employees, average state worker salaries, average local worker salaries, from 1965 1993. These three data sources should allow the authors to test hypotheses about public sector labor markets and to shed light on the functioning of governments in political settings.