Pedro GOMES

Birkbeck University of London - UK
Visiting Scholar invited by laboratory THEMA
Curriculum Vitae
 

Research project

Public and Private Employment in a Model with Underemployment

The public sector hires disproportionately more educated workers. Using US data from the CPS we show that this college bias holds across gender, age, states, level of government, as well as over time. It is also true within industries and in two thirds of 3-digit occupations. To rationalize this finding, we propose a model of private and public employment based on two key features. First, alongside a perfectly competitive private sector, our economy features a cost-minimizing government that acts with a wage schedule that does not equate supply and demand. Second, our economy features heterogeneity across individuals and jobs, and a simple sorting mechanism that generates underemployment. The equilibrium model is parsimonious and can be calibrated to match key moments of the US public and private sectors. We find that, in the US economy, the excess hiring of skilled in the public sector is mainly accounted for by technological consideration, with the public wage differential and excess underemployment in the public sector accounting for 15 percent of the education bias. In addition, we find that more wage compression in the public sector raises inequality in the private sector