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Public Employment and Labor Market Performance

Updated on 15 November 2016 Published

Citation

Algan Yann, Cahuc Pierre, Zylberberg André, Pischke Jörn-Steffen, Verdier Thierry. In: Economic Policy, Vol. 17, No. 34 (Apr., 2002), pp. 7-65.

Abstract

We explore the consequences of public employment for labour market performance. Theory suggests that public employment may not only crowd out private employment, but also increase overall unemployment if, by offering attractive working conditions, it draws additional individuals into the labour force. Empirical evidence from a sample of OECD countries in the 1960-2000 period suggests that, on average, creation of 100 public jobs may have eliminated about 150 private sector jobs, slightly decreased labour market participation, and increased by about 33 the number of unemployed workers. Theoretical considerations and empirical evidence, however, suggest that the crowding out effect of public jobs on private jobs is only significant in countries where public production is highly substitutable to private activities and the public sector offers more attractive wages and/or other benefits than the private labour market.