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The effects of public sector employment on household savings and labor supply

Published online by Cambridge University Press:  14 June 2023

Luis G. Bettoni Open the ORCID record for Luis G. Bettoni [Opens in a new window]  and
Marcelo R. Santos
Luis G. Bettoni
Affiliation:
Insper, São Paulo, Brazil
Marcelo R. Santos*
Affiliation:
Insper, São Paulo, Brazil University of Sussex, Brighton, UK
*
Corresponding author: Marcelo R. Santos; Email: marcelors2@insper.edu.br
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Abstract

In many countries, the structure of wages and the labor law legislation are completely different for public and private sector employees. In this paper, we develop a general equilibrium overlapping generations model to study the effect of such differences on household savings and labor supply. To conduct our analysis, first we use microdata from two Brazilian household surveys to document that civil servants save and work significantly less than their counterparts in the private sector. Second, we use matched employer–employee microdata from Brazil (RAIS) to document differences between the two sectors in terms of wage and unemployment risk. Then, we calibrate the model to be consistent with micro and macro evidence for Brazil. Our counterfactual exercises show that differences in wages characteristics and labor law legislation account for nearly 70% of the gap in savings between civil servants and private sector workers, and 57% of the gap in labor supply. In addition, we find that eliminating those differences can produce sizable increase on aggregate savings, employment, and welfare.

Keywords

Public sector employmenthousehold savingslabor supply
Type
Articles
Information
Macroeconomic Dynamics , Volume 28 , Issue 3 , April 2024 , pp. 718 - 744
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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