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The Impact of Public Employment: Evidence from Bonn

Author

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  • Sascha O. Becker
  • Stephan Heblich
  • Daniel M. Sturm

Abstract

This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model.

Suggested Citation

  • Sascha O. Becker & Stephan Heblich & Daniel M. Sturm, 2018. "The Impact of Public Employment: Evidence from Bonn," SERC Discussion Papers 0228, Spatial Economics Research Centre, LSE.
  • Handle: RePEc:cep:sercdp:0228
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    References listed on IDEAS

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    Cited by:

    1. Max Nathan, 2019. "Does Light Touch Cluster Policy Work? Evaluating the Tech City Programme," CEP Discussion Papers dp1648, Centre for Economic Performance, LSE.
    2. Blesse Sebastian & Rösel Felix, 2017. "Was bringen kommunale Gebietsreformen?: Kausale Evidenz zu Hoffnungen, Risiken und alternativen Instrumenten," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(4), pages 307-324, November.
    3. 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.
    4. Faggio, Giulia, 2019. "Relocation of public sector workers: Evaluating a place-based policy," Journal of Urban Economics, Elsevier, vol. 111(C), pages 53-75.
    5. 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.
    6. XeniaFrei & MarcelThum, 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.
    7. Felix Rösel, 2016. "Gibt es Einspareffekte durch Kreisgebietsreformen? – Evidenz aus Ostdeutschland," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(22), pages 26-33, November.

    More about this item

    Keywords

    economic geography; public employment; place-based policies; German division;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-
    • 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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