Effects of Government Spending on Employment: Evidence from Winners and Runners-Up in Procurement Auctions

43 Pages Posted: 2 Jan 2018

See all articles by Klaus Peter Gugler

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

Michael Weichselbaumer

Vienna University of Economics and Business

Christine Zulehner

University of Vienna - Faculty of Business, Economics, and Statistics; Telecom ParisTech; Austrian Institute of Economic Research (WIFO); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

To estimate demand for labor, we use a combination of detailed employment data and the outcomes of procurement auctions, and compare the employment of the winner of an auction with the employment of the second ranked firm (i.e. the runner-up firm). Assuming similar ex-ante winning probabilities for both firms, we may view winning an auction as an exogenous shock to a firm's production and its demand for labor. We utilize data from almost 900 construction firms and about 3,000 auctions in Austria in the time period 2006 until 2009. Our main results show that the winning firm significantly increases labor demand in the weeks following an auction. In the years before the recent economic crisis, it employs about 80 workers more two months after the auction than the runner-up firm. Winners predominantly fire fewer workers after winning than runner-up firms. In the crisis, however, firms do not employ more workers than their competitors after winning an auction. We discuss explanations like labor hoarding and productivity adjustments induced by the crisis for these results.

Keywords: construction procurement, first-price auctions, labor demand, labor hoarding, recent economic crisis

JEL Classification: D44, L10, L13

Suggested Citation

Gugler, Klaus Peter and Weichselbaumer, Michael and Zulehner, Christine, Effects of Government Spending on Employment: Evidence from Winners and Runners-Up in Procurement Auctions (December 2017). CEPR Discussion Paper No. DP12548. Available at SSRN: https://ssrn.com/abstract=3095598

Klaus Peter Gugler (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Michael Weichselbaumer

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Christine Zulehner

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Oskar-Morgenstern-Platz 1
Wien, 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/christine.zulehner

Telecom ParisTech ( email )

46 rue Barrault
F-75634 Paris, Cedex 13
France

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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