Resource title

Why is the public sector more labor-intensive?

Resource image

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Resource description

A relatively high labor-intensity in government-run entities need not imply slack in their organization. Rather, it is a rational reaction to various forms of wage tax advantage that the public sector has over private firms. Even though an unequal tax treatment of public and private sectors precludes production efficiency, it may improve welfare by mitigating the labor supply distortion. With inelastic labor supply, privatizing a previously government-run sector improves welfare, while with elastic labor supply a full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages.

Resource author

Panu Poutvaara, Andreas Wagener

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18897

Resource license

Adapt according to the presented license agreement and reference the original author.