• Fiscal Transfers, Regional Labour Market and Economic Convergence

M. CAPELLO, ALBERTO FIGUERAS, S. FREILLE Y P. MONCARZ

´Córdoba

Jornada; 42º Jornadas Internacionales de Finanzas Públicas,; 2009

Facultad de Ciencias Económicas de Córdoba

This paper examines the relationship between federal transfers and the existence of a wage premium for the public sector relative to the private sector in Argentina. Using theoretical insights from two related literatures, we provide a simple conceptual framework aimed at specifying the basic relations and to motivate the econometric model. Our results suggest that the public sector pays a wage premium relative to the wages paid by the private sector. This premium is increasing in the level of per capita federal transfers. We also find no significant evidence suggesting that federal transfers have an effect on wages in the private manufacturing sector at the aggregate level. However, there is some evidence as to a significant positive relationship between federal transfers and wages paid to workers with less formal education; for jobs requiring a technical or professional qualification the relationship between wages and federal transfers is negative and significant. These results broadly support our hypothesis that the private sector faces harder competition in the labour market in provinces which receive larger transfers from the central government