Local Labor Market Effects of Public Employment

IEB Working Paper N. 2016/11

49 Pages Posted: 9 Apr 2016

See all articles by Jordi Jofre‐Monseny

Jordi Jofre‐Monseny

University of Barcelona - Institut d'Economia de Barcelona (IEB)

José I. Silva

University of Girona

Javier Vázquez-Grenno

University of Barcelona; University of Barcelona - Institut d'Economia de Barcelona (IEB)

Multiple version iconThere are 2 versions of this paper

Date Written: April 7, 2016

Abstract

This paper quantifies the impact of public employment on local labor markets in the long-run. We adopt two quantitative approaches and apply them to the case of Spanish cities. In the first, we develop a 3-sector (public, tradable and non-tradable) search and matching model embedded within a spatial equilibrium model. We characterize the steady state of the model, which we calibrate to match the labor market characteristics of the average Spanish city. The model is then used to simulate the local labor market effects of expanding public sector employment. In the second empirical approach, we use regression analysis to estimate the effects of public sector job expansions on decadal changes (1980-1990 and 1990-2001) in the employment and population of Spanish cities. This analysis exploits the dramatic expansion of public employment that followed the advent of democracy in the period 1980 to 2001. The instrumental variables’ approach that we adopt uses the capital status of cities to instrument for changes in public sector employment. The two empirical approaches yield qualitatively similar results and, thus, cross-check each other. One additional public sector job creates about 1.3 jobs in the private sector. However, these new jobs do not translate into a substantial reduction in the local unemployment rate as better labor market conditions attract new workers to the city. Increasing public employment by 50% only reduces unemployment from 0.156 to 0.150.

Keywords: Public employment, search, local multipliers, unemployment

JEL Classification: J45, J64, H70, R12

Suggested Citation

Jofre‐Monseny, Jordi and Silva, José I. and Vázquez-Grenno, Javier, Local Labor Market Effects of Public Employment (April 7, 2016). IEB Working Paper N. 2016/11, Available at SSRN: https://ssrn.com/abstract=2760373 or http://dx.doi.org/10.2139/ssrn.2760373

Jordi Jofre‐Monseny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ Tinent Coronel Valenzuela, 1-11
Barcelona, 08034
Spain

José I. Silva

University of Girona ( email )

Carrer de la Universitat de Girona, 10
Departament d'Economia
Girona, Girona 17003
Spain

Javier Vázquez-Grenno (Contact Author)

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ Tinent Coronel Valenzuela, 1-11
Barcelona, 08034
Spain

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