Labour Costs and the Size of Government1. (25th June 2016)

• Record Type: Journal Article
• Authors: Facchini, François; Melki, Mickael; Pickering, Andrew
• Is Part Of: Oxford bulletin of economics and statistics. Volume 79:Number 2(2017)
• Page Start: 251
• Page End: 275
• Publication Date: 2016-06-25
• Subjects: Economic history -- Periodicals; Great Britain -- Economic conditions -- Periodicals; 330.9
• DOI: 10.1111/obes.12140
• Languages: English
• ISSNs: 0305-9049

Abstract

Abstract: 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.