IZA DP No. 10467: Public-Sector Employment in an Equilibrium Search and Matching Model
forthcoming in: Economic Journal, 2017
We extend the Diamond-Mortensen-Pissarides model of equilibrium unemployment to incorporate public-sector employment. We calibrate our model to Colombian data and analyze the effects of public-sector wage and employment policy on the unemployment rate, on the division of employment between the private and public sectors, and on the distributions of wages in the two sectors.