Chapter 53 Recent developments in public sector labor markets

This chapter reviews recent developments in research on public sector labor markets. Public sector labor markets have two important characteristics which account for the interest in their operation. First, public sector labor markets are large — in most developed countries the public sector workforce accounts for over 15% of total employment. Second, public sector labor markets are different from private sector labor markets. Most importantly, politicians or bureaucrats may have objectives which differ from those of the owners of private sector firms; and the political system can allow scope for achieving those objectives where a market system would not. The introductory sections of the chapter present a simple conceptual framework for thinking about the operation of public sector labor markets, and background information on a range of key characteristics of public sector labor markets such as union structure and the institutional environment for wage bargaining. The main sections summarize a variety of research relating to earnings and employment outcomes in public sector labor markets. First, studies which compare average earnings outcomes of public sector and private sector employees in a range of countries are reviewed. Second, studies of the determinants of earnings of local government employees in the United States are described. Third, various information on the earnings structure and distribution of earnings in the public sector and private sector is presented. Fourth, studies of the level and composition of public sector employment are summarized. A concluding section presents an overview of the main findings and themes from research on public sector labor markets, and suggests topics for future research.