most of the empirical studies surveyed by Bender (1998) do find a positive central
government-private sector wage differential in the U.S. and Western Europe.8
Let us now describe the details of the political process, drawing heavily on
the framework proposed by Persson and Tabellini (2000, sec. 3.5). There are
two political parties (A and B) competing for government office. Each party
chooses a fiscal policy package consisting of a level of public service provision, a
public sector wage rate and a capital tax rate. The two parties differ in some
‘ideological’ dimension and voters have different individual preferences regarding
this non-economic aspect of policy. Let UiP denote the economic welfare of a
public sector insider in case the policy of party P is implemented, P = A, B .An
individual member j of the public sector insider lobby will then vote for party A
if
UiA >UiB +ρij +ωe, (2.16)
where ρij is an individual ideological bias in favour of party B , with zero mean value
across all lobby members, and ωe is a general (stochastic) ideological preference in
favour of that party, capturing any underlying political mood affecting all voters.
Similarly, if UoP is the expected economic welfare of an outsider in case party P ’s
economic policy is implemented, voter v in the group of outsiders will prefer party
A if UoA >UoB + ρov + ωe . The general ideological bias is assumed to be given by
ω = ω + h ∙ (αiZB — ai'ZA) , h > 0, 0 < ai < 1. (2.17)
Here ω is a stochastic term with mean zero, ZP is the public sector lobby’s cam-
paign effort in support of party P , measured per member of the lobby, and αi
is the predetermined fraction of voters belonging to the lobby so that αi ZP is
the total lobby support for party P . The campaign effort could take the form of
8Falch and Str0m (2005) also find evidence from Norway that various indicators of the polit-
ical strength of public sector employees have a positive impact on public sector wage rates.
However, these authors do not investigate whether public sector workers are generally better
paid than corresponding groups of workers in the private sector.
Whether public sector workers earn rents is an issue that is probably hard to settle. In our
model rents take the form of a relatively high public sector wage rate, but the wage rates in the
model should be interpreted as wages per unit of effort for wage differentials to be an appropriate
indicator of rents. Thus, even if empirical studies were to reveal that public sector wage rates
do not exceed the wages for similar groups of workers in the private sector, this would not
necessarily imply the absence of rents in the public sector.
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