Local labor market effects of public employment

Javier Vázquez-Grenno (), Jordi Jofre-Monseny () and José Silva
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Javier Vázquez-Grenno: Universitat de Barcelona, IEB
Jordi Jofre-Monseny: Universitat de Barcelona, IEB
Authors registered in the RePEc Author Service: Javier Vázquez Grenno ()

No 2016/11, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: This paper quantifies the impact of public employment on local labor markets in the long-run. We adopt two quantitative approaches and apply them to the case of Spanish cities. In the first, we develop a 3-sector (public, tradable and non-tradable) search and matching model embedded within a spatial equilibrium model. We characterize the steady state of the model, which we calibrate to match the labor market characteristics of the average Spanish city. The model is then used to simulate the local labor market effects of expanding public sector employment. In the second empirical approach, we use regression analysis to estimate the effects of public sector job expansions on decadal changes (1980-1990 and 1990-2001) in the employment and population of Spanish cities. This analysis exploits the dramatic expansion of public employment that followed the advent of democracy in the period 1980 to 2001. The instrumental variables’ approach that we adopt uses the capital status of cities to instrument for changes in public sector employment. The two empirical approaches yield qualitatively similar results and, thus, cross-check each other. One additional public sector job creates about 1.3 jobs in the private sector. However, these new jobs do not translate into a substantial reduction in the local unemployment rate as better labor market conditions attract new workers to the city. Increasing public employment by 50% only reduces unemployment from 0.156 to 0.150.

Keywords: Public employment; search; local multipliers; unemployment (search for similar items in EconPapers)
JEL-codes: H70 J45 J64 R12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Local labor market effects of public employment (2020)
Working Paper: Local labor market effects of public employment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2016-11

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