The Effect of Public Sector Employment on Local Labour Markets

a discussion paper (SERC 111) by Giulia Faggio and Henry G. Overman (Spatial Economics Research Centre (SERC), London School of Economics & Political Science) published June 2012

Abstract

This paper considers the impact of public sector employment on local labour markets. Using English data at the Local Authority level for 2003 to 2007 we find that public sector employment has no identifiable effect on total private sector employment. However, public sector employment does affect the sectoral composition of the private sector.

Specifically, each additional public sector job creates 0.5 jobs in the nontradable sector (construction and services) while crowding out 0.4 jobs in the tradable sector (manufacturing). When using data for a longer time period (1999 to 2007) we find no multiplier effect for nontradables, stronger crowding out for tradables and, consistent with this, crowding out for total private sector employment.

Full text (PDF 34pp)

JEL Classifications: J31, J45

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