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Equilibrium Unemployment and Endogenous Public Sector Employment
Author(s) -
Ho Kong Weng,
Hoon Hian Teck
Publication year - 1997
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/1467-999x.00024
Subject(s) - economics , unemployment , public sector , labour economics , unemployment rate , general equilibrium theory , output elasticity , full employment , elasticity of substitution , capital (architecture) , macroeconomics , economy , production (economics) , history , archaeology
This paper develops a model of the equilibrium rate of unemployment with an endogenous share of public sector employment. We show how various macroeconomic shocks drive up the equilibrium rate of unemployment, accompanied by predictable variations in the public sector share of employment. In particular, under the empirically plausible assumptions that the public sector is relatively labor‐intensive and the elasticity of substitution between capital and labor is less than unity, public sector employment is shown to be countercyclical. When the equilibrium unemployment rate rises over a prolonged time period, the public sector share of employment also rises.