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Employment policy and public salaries: a European comparison

13rd National Competition for Economic Research Grants

Labour economics

Senior Researcher : Pedro Gomes

Research Centre or Institution : Universidad Carlos III de Madrid.


The aim of this project is to compare the employment policies and salaries in the public sectors of a number of European countries. The public employment policies are heterogeneous in terms of the number of workers and their education. The public sector hires mainly qualified workers. In Spain, for example, the Government employs 39 per cent of university graduates, but just 14 per cent of workers with lower qualifications. Salary policies are also diverse. The researchers estimate that the salary premium of the public sector, though positive on average, is different across different education levels. Less qualified workers are paid a high premium, while more qualified workers receive a lower or even a negative premium.

The fragile relationship between salaries in the public and private sectors creates distortions in the labour market which affect workers in different ways. Higher salaries in the public sector create queues for those jobs, while lower salaries generate recruitment problems. Government incentives regarding what types of workers to hire also have an impact. A very high premium for some workers reduces demand for them and increases the unemployment rate.

My aim is to evaluate the distortions in the different European countries and the benefits of alternative policies. First, I will use the micro-data of several European surveys, available for 2002, 2006 and 2010, and for the year 2014. This will make it possible to describe the evolution in employment in the public sector and the salary premium before, during and after the crisis, for the different types of workers. Secondly, I will construct a quantitative macro model with frictions in the labour market, to evaluate the impact of the different policies on unemployment and on public spending.

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