How harmful are cuts in public employment and wage in times of high unemployment?

Thomas Coudert and Thierry Betti

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: Since 2010 public employment and public-sector salaries have been significantly reduced in most Euro Area member states. In this article we show to what extent these cuts in the public sector have been costly particularly in terms of employment and output. In a New Keynesian model with a two-sector labor market, we demonstrate that the cost of these spending cuts on employment and output is significantly larger in periods of high unemployment. We also exhibit that cuts in public employment and wage in a Eurozone prone to high unemployment have only a limited ability to reduce deficit.

Keywords: Fiscal Policy; Public Employment; Public Wage; Labor Market; Unemployment. (search for similar items in EconPapers)
JEL-codes: E62 J38 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ger, nep-lma and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: How harmful are cuts in public employment and wage in times of high unemployment? (2022)
Working Paper: How harmful are cuts in public employment and wage in times of high unemployment? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2016-05

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