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Labour Costs and the Size of Government
Author(s) -
Facchini François,
Melki Mickael,
Pickering Andrew
Publication year - 2017
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12140
Subject(s) - economics , government (linguistics) , labour economics , slowdown , government spending , public sector , demographic economics , market economy , economic growth , economy , philosophy , linguistics , welfare
Given inelastic demand for labour‐intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business‐sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post‐war era.