Public Wage Bill Research Articles

The Cyclicality of Consumption, Wages and Employment of the Public Sector in the Euro Area

This study examines the business cycle behaviour of public consumption and its main components; the public wage bill (including compensation per employee and public employment) and intermediate consumption in the euro area aggregate, euro area countries and a group of selected non-euro area OECD countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1-2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments (automatic stabilizers), but also point to the important role of pro-cyclical discretionary fiscal policies. JEL Classification: E62, E63, H50

The International Effects of Government Spending Composition

This paper helps resolve a paradox in the literature, noticed by Alesina and Perotti (1995), which is that, although government employment is an important component of public spending, the debate on the effects of fiscal policy focuses almost exclusively on shocks to non-wage government consumption. We incorporate the distinction between spending for government employment and spending for non-wage government consumption in a new open economy macroeconomics model. Our results show that a permanent reduction in public employment in one country reduces relative private consumption and appreciates the domestic exchange rate if it is matched by a reduction in taxes. When the reduction in public employment is used to finance increased non-wage government consumption, the macroeconomic effects results are ambiguous, and are affected by the initial level of the public wage bill.

The International Effects of Government Spending Composition

This paper helps resolve a paradox in the literature, noticed by Alesina and Perotti (1995), which is that, although government employment is an important component of public spending, the debate on the effects of fiscal policy focuses almost exclusively on shocks to non-wage government consumption. We incorporate the distinction between spending for government employment and spending for non-wage government consumption in a new open economy macroeconomics model. Our results show that a permanent reduction in public employment in one country reduces relative private consumption and appreciates the domestic exchange rate if it is matched by a reduction in taxes. When the reduction in public employment is used to finance increased non-wage government consumption, the macroeconomic effects results are ambiguous, and are affected by the initial level of the public wage bill.

Internal adjustments to falling civil service salaries: Insights from Uganda

Real basic salaries of civil servants in many developing countries have fallen during the past 15 years. Little is known, however, as to how the civil service personnel structure and pay system have responded to the salary cuts. Civil service basic salaries fell drastically in Uganda during 1975–1988. The adaptive responses of the civil service are identified. Allowances have not increased to cushion the salary cuts, as is alleged to have happened in many developing countries. The adaptive responses have had negative effects on efficiency and equity within the civil service. They have reversed the decline in the public wage bill, the raison d'être for deep salary slashes in the first place.