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American Economic Journal: Economic Policy: Vol. 6 No. 2 (May 2014)

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Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers

Article Citation

Brueckner, Jan K., and David Neumark. 2014. "Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers." American Economic Journal: Economic Policy, 6(2): 198-230.

DOI: 10.1257/pol.6.2.198

Abstract

Rent extraction by public sector workers may be limited by the ability of taxpayers to vote with their feet. But rent extraction may be higher in regions where high amenities mute the migration response. This paper develops a theoretical model that predicts such a link between public sector wage differentials and local amenities, and the predictions are tested by analyzing variation in these differentials and amenities across states. Public sector wage differentials are, in fact, larger in the presence of high amenities, with the effect stronger for unionized public sector workers, whose political power may allow greater scope for rent extraction.

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Authors

Brueckner, Jan K. (U CA, Irvine)
Neumark, David (U CA, Irvine)

JEL Classifications

H75: State and Local Government: Health; Education; Welfare; Public Pensions
H76: State and Local Government: Other Expenditure Categories
J31: Wage Level and Structure; Wage Differentials
J32: Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
J45: Public Sector Labor Markets
J51: Trade Unions: Objectives, Structure, and Effects

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