The Impact of Public Employment: Evidence from Bonn

46 Pages Posted: 13 Mar 2018

See all articles by Sascha O. Becker

Sascha O. Becker

Monash University - Department of Economics; University of Warwick

Stephan Heblich

Munk School of Global Affairs & Public Policy and Dept. of Economics,

Daniel M Sturm

London School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2018

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 emphasized by the model.

Keywords: economic geography, public employment, place-based policies, German division

JEL Classification: F150, J450, N440, R120

Suggested Citation

Becker, Sascha O. and Heblich, Stephan and Sturm, Daniel M, The Impact of Public Employment: Evidence from Bonn (January 24, 2018). CESifo Working Paper Series No. 6841, Available at SSRN: https://ssrn.com/abstract=3138330 or http://dx.doi.org/10.2139/ssrn.3138330

Sascha O. Becker (Contact Author)

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Stephan Heblich

Munk School of Global Affairs & Public Policy and Dept. of Economics, ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Daniel M Sturm

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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