No. 5/2014:Natural Resources and Public Sector Wages

Abstract

This paper studies the effects of natural resource abundance on wages for local public sector leaders in Norway. Local governments with high public revenues from the hydropower sector have fewer economic constraints compared with other local governments. High revenues might make it easier for public sector leaders to use their political power to increase leader wages relative to the wages received by other working groups. Novel data on local public sector wages, in combination with an exogenous instrument for hydropower revenues, lead to a unique empirical framework for this analysis. The instrumental variable estimates exploit the variation in geographical and topological characteristics, such as the length of rivers, river slope, water flow volume, and precipitation. Although the results indicate that public sector wages are positively affected by local government revenues, there is no evidence that the revenue effect is stronger for leader wages than for the wages of other working groups.