Labor Market Effects of Private Provider Entry in Social and Health Services

Max Toikka, Tanja Saxell and Markku Siikanen

No 184, Working Papers from VATT Institute for Economic Research

Abstract: We examine the effects of private sector expansion on local labor markets for social and health care workers using comprehensive administrative data and a difference-in-differences design based on the staggered entry of private providers. Entry increases private sector employment, crowding out public employment with little change in total employment. Public sector wages remain largely unchanged, while private sector wages rise modestly. Public providers mitigate staffing shortages by purchasing more services from private providers without raising workloads for remaining workers. The decline in the public wage bill largely offsets higher private service spending, leaving total public expenditure on social and health services almost unchanged.

Keywords: local labor markets; entry; mixed markets; social and health care; outsourcing; wage rigidity; labor scarcity; H44; L33; I11; J21; J44; C23; fi=Kunnat ja hyvinvointialueet|sv=Kommuner och välfärdsområden|en=Municipalities and wellbeing services counties|; fi=Terveyspalvelut|sv=Hälsovårdstjänster|en=Healthcare services|; fi=Työmarkkinat|sv=Arbetsmarknad|en=Labour markets| (search for similar items in EconPapers)
Date: 2026
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