Labor Market Effects of Private Provider Entry in Social and Health Services

We examine the effects of private sector expansion on local labor markets for social and health care workers using comprehensive administrative data and a difference-in-differences design based on the staggered entry of private providers. Entry increases private sector employment, crowding out public employment with little change in total employment. Public sector wages remain largely unchanged, while private sector wages rise modestly. Public providers mitigate staffing shortages by purchasing more services from private providers without raising workloads for remaining workers. The decline in the public wage bill largely offsets higher private service spending, leaving total public expenditure on social and health services almost unchanged.