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The Impact of Public Employment : Evidence from Bonn

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  • Becker, Sascha O.

    (University of Warwick, CAGE and CEPR)

  • Heblich, Stephan

    (University of Bristol, IZA and SERC)

  • Sturm, Daniel M.

    (London School of Economics and CEPR)

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

  • Becker, Sascha O. & Heblich, Stephan & Sturm, Daniel M., 2018. "The Impact of Public Employment : Evidence from Bonn," The Warwick Economics Research Paper Series (TWERPS) 1146, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:1146
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    2. Jofre-Monseny, Jordi & Silva, José I. & Vázquez-Grenno, Javier, 2020. "Local labor market effects of public employment," Regional Science and Urban Economics, Elsevier, vol. 82(C).
    3. Nathan, Max, 2019. "Does light touch cluster policy work? Evaluating the tech city programme," LSE Research Online Documents on Economics 103421, London School of Economics and Political Science, LSE Library.
    4. Roesel, Felix, 2017. "Do mergers of large local governments reduce expenditures? – Evidence from Germany using the synthetic control method," European Journal of Political Economy, Elsevier, vol. 50(C), pages 22-36.
    5. Faggio, Giulia, 2019. "Relocation of public sector workers: Evaluating a place-based policy," Journal of Urban Economics, Elsevier, vol. 111(C), pages 53-75.
    6. 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.
    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.
    8. Anton Muscatelli & Graeme Roy & Alex Trew, 2022. "Persistent States: lessons for Scottish devolution and independence," Working Papers 2022_02, Business School - Economics, University of Glasgow.
    9. 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.
    10. Ying Bai & Ruixue Jia, 2020. "The Economic Consequences of Political Hierarchy: Evidence from Regime Changes in China, AD1000-2000," NBER Working Papers 26652, National Bureau of Economic Research, Inc.
    11. Taner Osman & Tom Kemeny, 2022. "Local job multipliers revisited," Journal of Regional Science, Wiley Blackwell, vol. 62(1), pages 150-170, January.
    12. 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.
    13. Xenia Frei & Marcel Thum, 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.

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    More about this item

    Keywords

    Economic Geography ; Public Employment ; Place-Based Policies ; German Division;
    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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