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Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?

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  • Alberto Behar
  • Junghwan Mok

Abstract

We quantify the extent to which public-sector employment crowds out private-sector employment using specially assembled datasets for a large cross-section of developing and advanced countries, and discuss the implications for countries in the Middle East, North Africa, Caucasus and Central Asia. These countries simultaneously display high unemployment rates, low private-sector employment rates and high proportions of government-sector employment. Regressions of either private-sector employment rates or unemployment rates on two measures of public-sector employment point to full crowding out. This means that high rates of public employment, which incur substantial fiscal costs, have a large negative impact on private employment rates and do not reduce overall unemployment rates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/146.

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Length: 38
Date of creation: 12 Jun 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/146

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Keywords: Employment; Middle East; Central Asia; North Africa; Public sector; Private sector; Developing countries; Developed countries; Crowding out; Middle East and Central Asia; unemployment; public employment; employment rate; public-sector employment; private employment; labor force; unemployment rate; labor market; employment rates; labor force participation; public sector employment; government employment; labor demand; unemployment rates; high unemployment; employment equation; employment equations; employment data; unemployed; job creation; total employment; recession; employment effects; public- sector employment; high unemployment rates; youth unemployment; employment situation; job search; worker productivity; self-employment; employment practices; low employment; labor force participation rates; unemployed workers; unemployment problem; structural unemployment; labor supply; employment growth; unemployment among women; employment benefit; increasing labor force participation; low labor force participation; total labor force; employment outcomes; employment increases;

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  1. Richard B. Freeman, 2005. "Labour Market Institutions Without Blinders: The Debate over Flexibility and Labour Market Performance," NBER Working Papers 11286, National Bureau of Economic Research, Inc.
  2. Jeffrey A. Frankel & Carlos A. Végh & Guillermo Vuletin, 2011. "On Graduation from Fiscal Procyclicality," NBER Working Papers 17619, National Bureau of Economic Research, Inc.
  3. Filipe R. Campante & Davin Chor, 2012. "Why Was the Arab World Poised for Revolution? Schooling, Economic Opportunities, and the Arab Spring," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(2), pages 167-88, Spring.
  4. Malley, Jim & Moutos, Thomas, 1996. " Does Government Employment "Crowd-Out" Private Employment? Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 98(2), pages 289-302, June.
  5. Horst Feldmann, 2006. "Government Size and Unemployment: Evidence from Industrial Countries," Public Choice, Springer, Springer, vol. 127(3), pages 443-459, June.
  6. Horst Feldmann, 2010. "Government size and unemployment in developing countries," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(3), pages 289-292.
  7. Zenon Kontolemis G. & Dimitri G. Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 99/55, International Monetary Fund.
  8. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda, Federal Reserve Bank of Chicago 88-10, Federal Reserve Bank of Chicago.
  9. Raphael Espinoza, 2012. "Government Spending, Subsidies and Economic Efficiency in the GCC," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 095, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  10. Lorenzo E Bernal-Verdugo & Davide Furceri & Dominique Guillaume, 2012. "Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 251-273, June.
  11. Ana Lamo & Javier J. Pérez & Ludger Schuknecht, 2012. "Public or Private Sector Wage Leadership? An International Perspective," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 114(1), pages 228-244, 03.
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Cited by:
  1. Jelena Nikolic & Ivica Rubil & Iva Tomic, 2014. "Changes in Public and Private Sector Pay Structures in Two Emerging Market Economies during the Crisis," Working Papers, The Institute of Economics, Zagreb 1403, The Institute of Economics, Zagreb.
  2. Gomes, Pedro Maia & Kuehn, Zoë, 2014. "Human Capital and the Size Distribution of Firms," IZA Discussion Papers 8268, Institute for the Study of Labor (IZA).

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