Direct Democracy and Public Employees
American Economic Review · 2009 · Volume 99 · Issue 5
Abstract
In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, ameliorates these political economy problems. In a sample of 650+ cities, I find that when public employees cannot bargain collectively and patronage could be a problem, initiatives appear to cut employment but not wages. When public employees bargain collectively, driving up wages, the initiative appears to cut wages but not employment. The employment-cutting result is robust; the wage-cutting result survives some but not all robustness tests. (JEL D72, J31, J45, J52)
Keywords
Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior, Wage Level and Structure, Wage Differentials, Public Sector Labor Markets, Dispute Resolution: Strikes, Arbitration, and Mediation, Collective Bargaining
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