Public sector jobs are created because governments opt to provide goods and services produced directly by public employees. Governments, however, may also choose to regulate the size of the public sector in order to stabilize targeted national employment levels. However, economic research...

This paper formally analyzes the optimal implementation of compensation schemes where the wage cannot decrease in time. Such arrangements are commonly applied to tenured academics and civil servants. We use a finite-horizon model of moral hazard to analyze the disincentive effects and the cost...