Inter-municipal cooperation and public employment: evidence from French municipalities

Studies of public municipal employment are surprisingly scarce though municipalities are major employers in many countries. To address this issue, we build an original panel dataset of 8421 municipalities (more than 1000 inhabitants) in France over the 2002-2008 period, during which inter-municipal cooperation (IMC) was fostered. Using event study techniques to identify the causal effect of entry into an IMC body on municipal employment, we first show that cooperation triggers personnel downsizing at the municipal level. Second, using an IV method, we evidence a causal impact of employment at the inter-municipal community level on municipal employment. This effect is positive for municipalities with a short experience in cooperation, but becomes negative for more experienced municipalities, suggesting that substitution between the employment at the two tiers takes time to operate. Finally, cooperation leads mayors to increase municipal employment when unemployment is higher and this effect is greater for municipalities nested in high-employment communities than in small ones.