So it turns out according to recent research in the US, that public sector workers get better deals in nicer places.
The presence of local amenities can grant public-sector workers a form of monopoly power that lets them extract more rents.
People can only consume the beaches and sunshine of southern California, or benefit from the higher productivity of dense urban areas like Manhattan, by living nearby, and public-sector workers can therefore extract rents up to the point where those who pay the rents are induced to leave these high-amenity areas.
Is this why the Brazilian government moved its capital from Rio to Brasilia half a century ago?
Interesting post! I find this paper a little extreme though. Public sector pay accounts for less than 20% of total expenditures in the US at the state level (see link below). Also, not clear to me how cost of living (relatively much higher for these cities) was added into the picture.
In any case I agree public sector workers on these cities should stay put! Having lived in DC for a few years now I definitively would!
http://www.americanprogressaction.org/issues/labor/report/2011/03/10/9206/state-budget-deficits-are-not-an-employee-compensation-problem/