The earnings of state government employees in the United States

Abstract

This paper has presented a theoretical and empirical analysis of wage determination in the state government sector. The theoretical model is based on the assumption that the state government's objective is to maximize its political support. This objective function leads to predictable behavior regarding how state government employment policies react to changes in the state's wealth, income inequality, composition of constituency groups, and voting behavior. The empirical analysis, conducted on the 1970 U.S. Census Public Use Sample, showed that the wage of state government workers shifts as a result of changes in these political factors. In fact, the results indicated that over three-fourths of the interstate variation in the state government wage rate could be explained by the relatively small vector of political variables introduced in this paper. It should be clear, however, that the analysis conducted in this paper is but a first step in the systematic study of state government behavior. There are several areas where further research may lead to useful results. For example, an important determinant of state government behavior is the composition and power of the various constituency groups. In this paper, the empirical analysis concentrated on three obvious constituencies and ignored the power coalitions in the rest of the population. A more complete accounting of all constituencies may uncover additional results regarding the nature of the income redistribution policies conducted by state governments. Such an accounting could, of course, use the large volumes of available data which divide the state budgets into particular functions. Thus a more general framework could match the data available on the composition of the various constituencies with the data available on expenditures in specific functions. It is not unreasonable to expect that such generalizations of the analysis conducted in this paper will lead to important insights into the labor economics of political markets.