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Public employment and labour market performance

  • Yann Algan
  • Pierre Cahuc
  • André Zylberberg

This paper deals with the consequence of public employment on labor market performances in 17 OECD countries over the period 1960-2000. It is argued that public employment had an important crowding out e¤ect on the private sector and increased the unemployment rate over this period. More precisely, empirical evidence suggests that the creation of one public job destroyed about 1.5 private job, sightly decreased participation to the labor market and eventually increased the number of unemployed workers by 0:3: Theoretical considerations and empirical evidence also suggest that the crowding out effect of public jobs on private jobs is more important in countries in which public production ishighly substitutable to private activities and in which the public sector provides high rents.

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Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 17 (2002)
Issue (Month): 34 (04)
Pages: 7-66

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Handle: RePEc:bla:ecpoli:v:17:y:2002:i:34:p:7-66
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  1. Stephan Danninger & Alberto Alesina & Massimo V. Rostagno, 1999. "Redistribution Through Public Employment: The Case of Italy," IMF Working Papers 99/177, International Monetary Fund.
  2. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  3. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
  4. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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  8. Holmlund, B., 1991. "Wage Setting in Private and Public Sectors in a Model with Endogenous Government Behavior," Papers 1991i, Uppsala - Working Paper Series.
  9. Albert Ma, Ching-to & Weiss, Andrew M., 1993. "A signaling theory of unemployment," European Economic Review, Elsevier, vol. 37(1), pages 135-157, January.
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  12. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  13. Ronald G. Ehrenberg & Joshua L. Schwarz, 1983. "Public Sector Labor Markets," NBER Working Papers 1179, National Bureau of Economic Research, Inc.
  14. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
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  17. Layard, R. & Nickell, S., 1991. "Unemployment in the OECD Countries," Economics Series Working Papers 99130, University of Oxford, Department of Economics.
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