The news from Cali isn’t getting any better

Riverside’s Hillcrest High: What if they built a school and nobody got to go?” A $105 million high school–yes,: $105 million–will be unused for at least one year.

Walter Russell Mead plays taps. (And proposes a solution I haven’t seen before–split the state up into five parts. Interesting.)

And here’s one new, interesting reason for Cali’s problems: “Beaches, Sunshine, and Public-Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers“.

The absence of a competitive market and the presence and strength of public-sector labor unions make it likely that public-sector pay reflects an element of rent extraction by government workers. In this paper, we test a specific hypothesis that connects such rent extraction to the level of local amenities. Specifically, although migration of taxpayers limits the extent of rent-seeking, public-sector workers may be able to extract higher rents in regions where high amenities mute the migration response. We develop a theoretical model that predicts such a link between public-sector wage differentials and local amenities, and we test the model’s predictions by analyzing variation in these wage differentials and amenities across states. The evidence reveals that public-sector wage differentials are, in fact, larger in the presence of high amenities, with the effect being stronger for unionized public-sector workers, who are likely better able to exercise political power in extracting rents.

Craig Newmark

Associate Professor of Economics, North Carolina State Univ.

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