Equilibrium Unemployment and Endogenous Public Sector Employment

Publication Type

Journal Article

Publication Date

6-1997

Abstract

This paper develops a model of the equilibrium rate of unemployment with an endogenous share of public sector employment. We show how various macroeconomic shocks drive up the equilibrium rate of unemployment, accompanied by predictable variations in the public sector share of employment. In particular, under the empirically plausible assumptions that the public sector is relatively labor-intensive and the elasticity of substitution between capital and labor is less than unity, public sector employment is shown to be countercyclical. When the equilibrium unemployment rate rises over a prolonged time period, the public sector share of employment also rises.

Discipline

Economics | Macroeconomics

Research Areas

Macroeconomics

Publication

Metroeconomica

Volume

48

Issue

2

First Page

138

Last Page

160

ISSN

0026-1386

Identifier

10.1111/1467-999X.00024

Publisher

Wiley

Additional URL

https://doi.org/10.1111/1467-999X.00024

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