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What Drives Public Employment?


  • Dani Rodrik


Excessive levels of government employment is one of the most frequent complaints made about public-sector governance in developing economies. The explanation typically offered is that governments have used public-sector employment as a tool for generating and redistributing rents. This paper suggests an alternative hypothesis for government employment practices: relatively safe government jobs represent partial insurance against undiversifiable external risk faced by the domestic economy. By providing a larger number of secure' jobs in the public sector, a government can counteract the income and consumption risk faced by the households in the economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on the (partial) correlation between government employment and exposure to external risk is robust against the alternative hypothesis that government employment has been driven by considerations of rent-seeking and rent distribution.

Suggested Citation

  • Dani Rodrik, 1997. "What Drives Public Employment?," NBER Working Papers 6141, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6141
    Note: ITI PE

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    References listed on IDEAS

    1. Bourguignon, F. & Lambert, S. & Suwa-Eisenmann, A., 1996. "Distribution of Export Price Risk in a Developing Country," DELTA Working Papers 96-11, DELTA (Ecole normale supérieure).
    2. Rama,Martin G., 1997. "Efficient public sector downsizing," Policy Research Working Paper Series 1840, The World Bank.
    3. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    4. Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Rama,Martin G., 1997. "Efficient public sector downsizing," Policy Research Working Paper Series 1840, The World Bank.
    2. Michael, Bryane & Popov, Maja, 2011. "The Size and Structure of Government," MPRA Paper 53283, University Library of Munich, Germany.
    3. Ambra Poggi, 2012. "Public jobs and capabilities: the case of the Italian waste sector," LABORatorio R. Revelli Working Papers Series 127, LABORatorio R. Revelli, Centre for Employment Studies.
    4. repec:eee:labchp:v:3:y:1999:i:pc:p:3573-3630 is not listed on IDEAS
    5. Lawrence Kahn, 2002. "The Impact of Wage-Setting Institutions on the Incidence of Public Employment in the OECD: 1960-98," CESifo Working Paper Series 757, CESifo Group Munich.
    6. Ara Stepanyan & Lamin Y Leigh, 2015. "Fiscal Policy Implications for Labor Market Outcomes in Middle-Income Countries," IMF Working Papers 15/17, International Monetary Fund.
    7. Yves Abessolo, 2005. "Une analyse théorique de l’interaction entre l’emploi public et les performances du marché du travail dans les pays en développement," Documents de travail 110, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV.
    8. Johannes Hörner & L. Rachel Ngai & Claudia Olivetti, 2007. "Public Enterprises And Labor Market Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 363-384, May.
    9. Indranil Bose & R. K. Mudgal, 2016. "Impact of Globalization on Job-Abolition and Job-Creation in Recent Times: A Brief Research Overview," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(4), pages 223-228, November.
    10. Kim, Jaewon, 2006. "The Determinants of Labor Market Institutions: A Panel Data Study," Research Papers in Economics 2006:10, Stockholm University, Department of Economics, revised 06 Dec 2006.
    11. Céline Choulet, 2004. "Public employment and labour market performance : centralization wage setting effects," Cahiers de la Maison des Sciences Economiques v04036, Université Panthéon-Sorbonne (Paris 1).
    12. Garen, John & Trask, Kathleen, 2005. "Do more open economies have bigger governments? Another look," Journal of Development Economics, Elsevier, vol. 77(2), pages 533-551, August.
    13. Schmidt, Torsten, 2001. "Finanzreformen in der Bundesrepublik Deutschland: Analyse der Veränderungen der Finanzverfassung von 1949 bis 1989," RWI Schriften, RWI - Leibniz-Institut für Wirtschaftsforschung, volume 67, number 67.

    More about this item

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General


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