The interaction between private sector and public sector labor markets: Evidence from Romania

To account for these spillovers, we extend the standard New Keynesian model

Valeriu Nalban; Andra Smădu

2020

Scholarcy highlights

  • We find support for active labor market policies targeting primarily the private sector
  • We quantitatively assess the spillover effects originating from sectoral labor market shocks in an emerging economy
  • We allow for an active role of the government, which decides on the optimal amount of public employment, public wages and borrowing
  • The estimated structural model captures most empirical evidence: public job creation crowds out private sector employment and is contractionary, while increases in public wages lead to muted spillover effects; on the other hand, increases in both private employment and wages have sizable crowding in effects on public sector employees and are strongly expansionary
  • Most of the work related to this article was performed while both authors were economists at the National Bank of Romania
  • The views expressed in this paper are those of the authors and do not necessarily reflect the views of the National Bank of Romania, De Nederlandsche Bank, or the IMF

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