The Labor Share and the Size of Government

Andrew Christopher Pickering, François Facchini, Mickael Melki

Research output: Working paperDiscussion paper

Abstract

The size of government depends positively on the labor share given price-inelastic
demand for public services. OECD data support this hypothesis and also show a
stronger dependence under left-wing ideology because larger government employs a larger workforce. A permanent one standard deviation increase in the labor share is found on average to increase government size by about 9% of GDP, with increases of 6% in right-wing countries and 12% in left-wing countries. Contrary to Baumol'’s cost-disease the relationship is estimated to be independent of income. Recent reductions in the labor share have substantially slowed the growth of government in many countries.
Original languageEnglish
Place of PublicationYork, UK
PublisherDepartment of Economics and Related Studies, University of York
Pages1-31
Volume13/02
Publication statusPublished - 28 Jan 2013

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