Time Consistency and Bureaucratic Budget Competition
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 labour, 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. Copyright 2008 The Author(s). Journal compilation Royal Economic Society 2008.
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Volume (Year): 118 (2008)
Issue (Month): 525 (01)
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- Easterly, William & Baqir, Reza & Alesina, Alberto, 2000.
"Redistributive Public Employment,"
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- Rodrik, Dani, 2000. "What Drives Public Employment in Developing Countries?," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 229-43, October.
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- Gelb, A & Knight, John B & Sabot, R H, 1991. "Public Sector Employment, Rent Seeking and Economic Growth," Economic Journal, Royal Economic Society, vol. 101(408), pages 1186-99, September.
- Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-13, December.
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