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The impact of public employment: evidence from Bonn

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

Abstract

This paper evaluates the impact of changes in public employment on private sector activity using the creation of the new West German government in 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 affects private sector employment through its impact on wages and house prices and also through potential productivity and amenity spillovers to the private sector. 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 industry and creating just over one additional job in other parts of the private sector. We show how our model can explain this finding and provide several pieces of evidence for the mechanisms emphasized by the model.

Suggested Citation

  • Becker, Sascha O. & Heblich, Stephan & Sturm, Daniel M., 2021. "The impact of public employment: evidence from Bonn," LSE Research Online Documents on Economics 108867, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:108867
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    More about this item

    Keywords

    Economic geography; German division; Place-Based policies; Public employment;
    All these keywords.

    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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