The Labor Share and the Size of Government

Andrew Christopher Pickering; François Facchini; Mickael Melki

The Labor Share and the Size of Government

Andrew Christopher Pickering, François Facchini, Mickael Melki

Economics

Research output: Working paper › Discussion 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 language	English
Place of Publication	York, UK
Publisher	Department of Economics and Related Studies, University of York
Pages	1-31
Volume	13/02
Publication status	Published - 28 Jan 2013

Access to Document

http://www.york.ac.uk/media/economics/documents/discussionpapers/2013/1302.pdf

Public Choice
Pickering, A. C. (Speaker)
7 Mar 2013 → 10 Mar 2013
Activity: Participating in or organising an event › Conference participation

Cite this

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AB - The size of government depends positively on the labor share given price-inelasticdemand for public services. OECD data support this hypothesis and also show astronger 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.

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The Labor Share and the Size of Government

Abstract

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