Macroeconomic Effects of Public‐Sector Unions

Abstract

www.econstor.eu Macroeconomic effects of public-sector unionsAleksandar Vasilev * January 6, 2015 AbstractMotivated by the highly-unionized public sectors, the high public shares in total employment, and the public-sector wage premia observed in Europe, this paper examines the importance of public-sector unions for macroeconomic theory. The model generates cyclical behavior in hours and wages that is consistent with data behavior in an economy with highly-unionized public sector, namely Germany during the period 1970-2007. The union model is an improvement over a model with exogenous public employment. In addition, endogenously-determined public wage and hours add to the distortionary effect of contractionary tax reforms by generating greater tax rate changes, thus producing higher welfare losses.

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