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Local labor market effects of public employment

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  • Jofre-Monseny, Jordi
  • Silva, José I.
  • Vázquez-Grenno, Javier

Abstract

This paper quantifies the impact of public employment on local labor markets in the long-run. We adopt two quantitative approaches and apply them to the case of Spanish cities. In the first, we develop a 3-sector (public, tradable and non-tradable) search and matching model embedded within a spatial equilibrium model. We characterize the steady state of the model, which we calibrate to match the labor market characteristics of the average Spanish city. The model is then used to simulate the local labor market effects of expanding public sector employment. In the second empirical approach, we use regression analysis to estimate the effects of public sector job expansions on decadal changes (1980–1990 and 1990–2001) in the employment and population of Spanish cities. This analysis exploits the dramatic expansion of public employment that followed the advent of democracy in the period 1980 to 2001. The instrumental variables' approach that we adopt uses the capital status of cities to instrument for changes in public sector employment. The two empirical approaches indicate that public sector jobs crowd-in private employment. This job increase concentrates in the non-tradable sector as the higher local wage bill increases local demand for the non-tradable good. However, these new jobs do not translate into a substantial reduction in the local unemployment rate as better labor market conditions increase the city's labor force due to migration.

Suggested Citation

  • Jofre-Monseny, Jordi & Silva, José I. & Vázquez-Grenno, Javier, 2020. "Local labor market effects of public employment," Regional Science and Urban Economics, Elsevier, vol. 82(C).
  • Handle: RePEc:eee:regeco:v:82:y:2020:i:c:s0166046218300140
    DOI: 10.1016/j.regsciurbeco.2018.11.001
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    Cited by:

    1. Becker, Sascha O. & Heblich, Stephan & Sturm, Daniel M., 2021. "The impact of public employment: Evidence from Bonn," Journal of Urban Economics, Elsevier, vol. 122(C).
    2. Paolo Di Caro & Roberta Arbolino & Ugo Marani, 2018. "A note on the effects of human capital policies in Italy during the Great Recession," Economics Bulletin, AccessEcon, vol. 38(3), pages 1302-1312.
    3. Faggio, Giulia, 2019. "Relocation of public sector workers: Evaluating a place-based policy," Journal of Urban Economics, Elsevier, vol. 111(C), pages 53-75.
    4. Giulia Faggio & Teresa Schlüter & Philipp vom Berge, 2018. "Interaction of Public and Private Employment: Evidence from a German Government Move," SERC Discussion Papers 0229, Spatial Economics Research Centre, LSE.
    5. Esther Vayá & José Ramón García & Joaquim Murillo & Javier Romaní & Jordi Suriñach, 2016. "Economic impact of cruise activity: the port of Barcelona," Working Papers XREAP2016-07, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2016.
    6. Sophie Larribeau & Matthieu Leprince & Touria Jaaidane, 2020. "The Determinants of French Municipal Labor Demand," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2020-01, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    7. Mercedes Ayuso & Montserrat Guillen & Jens Perch Nielsen, 2019. "Improving automobile insurance ratemaking using telematics: incorporating mileage and driver behaviour data," Transportation, Springer, vol. 46(3), pages 735-752, June.
    8. Xenia Frei & Marcel Thum, 2019. "Behördenverlagerungen verändern die Arbeitsmarktstruktur," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 26(03), pages 06-08, June.
    9. Becker, Sascha O. & Heblich, Stephan & Sturm, Daniel M., 2021. "The impact of public employment: Evidence from Bonn," Journal of Urban Economics, Elsevier, vol. 122(C).
    10. Faggio, G. & Schluter, T. & vom Berge, P., 2016. "The impact of public employment on private sector activity: Evidence from Berlin," Working Papers 16/11, Department of Economics, City University London.

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    More about this item

    Keywords

    Public employment; Search; Local multipliers; Unemployment;
    All these keywords.

    JEL classification:

    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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