IV Determinants of the Size of Government Employment: An Alternative View of Wagner’s Law

Abstract

The literature on the determinants of government employment is thin.17 Among empirical works, only Martin (1982) and Lindauer (1980) have attempted any econometric explanation of the determinants of government employment. What is interesting is that such analyses fit within the framework of efforts to test the validity of Wagner’s law, which posited the growth of the government sector over time. Most tests of Wagner’s law have focused on the growth of the share of government expenditure, in real or nominal terms, as a share of GDP.18 Yet, clearly, growth in the size of government employment as a share of the total labor force or population over time might constitute an equally valid alternative test of this hypothesis. If public sector wages and salaries are strongly correlated with the size of the public sector (and from the discussion on pages 12-13 it appears that they are), then government employment and pay could be a good proxy measure of Wagner’s law. This would be a strong result in the sense that the growth of the public sector in terms of expenditure has also occurred in many developed countries by means of subsidies and transfers or through the contracting out of employment and services rather than through direct employment.

Cited By

Some International Comparisons
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