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The unintended consequences of meritocratic government hiring

Athanasios Geromichalos and Ioannis Kospentaris ()

European Economic Review, 2022, vol. 144, issue C

Abstract: In an attempt to mitigate the negative effects of partisan hiring, many governments around the world have adopted meritocratic hiring of public employees. This paper shows that meritocratic government hiring can have unintended negative consequences on macroeconomic aggregates. In many countries, public employees enjoy considerable job security and generous compensation schemes; as a result, many talented workers choose to work for the public sector, which deprives the private sector of productive potential employees. This, in turn, reduces firms’ incentives to create jobs, increases unemployment, and lowers GDP. To quantify the effects of this novel channel, we extend the standard Diamond–Mortensen–Pissarides model to incorporate workers of heterogeneous productivity and a government that fills public sector jobs based on merit. We calibrate the model to aggregate data from Greece and perform a series of counterfactual exercises. We find that the adverse effects of meritocratic hiring on TFP, GDP, and unemployment are sizeable.

Keywords: Search and matching models; Public sector; Meritocracy; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 J30 J45 J64 (search for similar items in EconPapers)
Date: 2022
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Working Paper: The Unintended Consequences of Meritocratic Government Hiring (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292122000381

DOI: 10.1016/j.euroecorev.2022.104093

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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