Real wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with a decline in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter...

This paper examines the question of government wage policy as an instrument for improving public sector management and, therefore, the fiscal balance. Evidence from several countries shows that real wage declines have been widely experienced in the public sector in many countries over...