High employment protection in the public sector results in strategic over-employment if government divisions compete for budgets in a dynamic setting. Bureaucrats who are interested in maximising their divisions’ output employ excess labor, since this induces the sponsor to provide complementary inputs in the future. Restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring. We also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection. The results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation.
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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1791.
Find related papers by JEL classification: H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
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