Public-Sector Rents in U.S. States
Sergei Busygin, Alexei Izyumov, Andrey Kostin, John Vahaly

Research has found that public sector workers in the U.S. earn more, on average, than their private sector peers with similar characteristics. We call such excess rewards “horizontal rents,” as opposed to “top rents” earned by those at the top of the income distribution. We estimate these horizontal rents on a state-by-state basis measuring them in the aggregate as “rent loads” as a percentage of state GDP for the period 2011-15. We then study their determinants, and consider measures that can reduce such rent loads. The analysis indicates that the most significant factors contributing to higher rent loads are state & local budget shares of the state GDP and share of public workers in labor force. The analysis also confirms the important role of the GDP growth in reducing the level of horizontal rent loads. In all regression specifications the GDP variable proved significant and had a negative sign. The implication is that in a dynamic growing economy private sector wages increase faster than in the public sector making the public wage premiums smaller and reducing the resulting rent load.

Full Text: PDF     DOI: 10.15640/jeds.v9n4a2