October 2017

IZA DP No. 11091: Heterogeneity and the Public Sector Wage Policy

published in: International Economic Review, 2018, 59 (3), 1469 -1489

A model with search and matching frictions and heterogeneous workers was established to evaluate a reform of the public sector wage policy in steady-state. The model was calibrated to the UK economy based on Labour Force Survey data. A review of the pay received by all public sector workers to align the distribution of wages with the private sector reduces steady-state unemployment by 1.4 percentage points.