You got to love Croatia’s new government. It seems that the individuals in the ruling party really cherish the benefits of working in government. The following statement was made on Facebook as an answer to the question, why don’t government officials lower their paycheck? It is argued that they would still have “enough” even with the cuts. This is the governments response:
“If we further reduce salaries of MPs, we would have to decrease the other state official's salaries, that the Prime Minister and ministers, and judicial official's salaries, means judges, the Attorney General the his deputies. By reducing their wages we would have to reduce the salaries of Assistant Ministers and other professional people who work in public administration, and this would lead to the fact that they would go out to systems in the private sector and the state administration would run out of those who need to help the state work well.”
So, instead that these people actually get a real job in the private sector, and not live of the government teat, the government is keeping the wage rate for these individuals at a artificially inflated level. So, what do you get in any price fixing scheme? Shortages or surpluses. In this case, we get a surplus. A surplus of government officials, or to look it differently, a shortage of private sector jobs.
We can assume that the crossover price elasticity of demand is negative, which means that for every increase in the price of labor in the private sector (wage increase), their wouldn’t be any such change in quantity demanded for it coming from people in government. Because the government is keeping the price of labor above this point of market equilibrium, people in government aren’t so enthusiastic of leaving their positions.
ε_x= (∆Q_DA) ⁄ (∆P_B ) < 0
I wish somebody would really do empiric research for this, by choosing for example the Finance Ministry as the price of labor in government and then use a set of jobs in the financial industry for quantity demanded and see the cross price elasticity of demand and the income elasticity of demand.
This rule may apply for income elasticity of demand as well. If income elasticity of demand was greater than one, any fall in wages in the government sector, would be followed by an increase in the number of individuals in the private sector. To keep things simple, we may assume homogenous workplaces in government and in the private sector. This would mean that these goods are categorized as normal goods, not inferior goods, as they are now.
This simple analysis doesn’t deter us from the fact that for people in government to survive, they are indebted to the individuals in the private sector, because government doesn’t have any wealth, just a redistribution scheme.
Couple that with an unlimited refinancing deceive (central bank, national banks), it is no wonder why so many people think that a government job is somewhat more noble or prestigious than one in the private sector.
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