Worker- and Firm-Level Effects of an Outsourcing Ban

Ugur Aytun, Eren Gurer () and Erol Taymaz ()
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Eren Gurer: Department of Economics, Middle East Technical University, Ankara, Turkey
Erol Taymaz: Department of Economics, Middle East Technical University, Ankara, Turkey

No 2602, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: In December 2017, the government of T¨ urkiye announced a comprehensive ban on the procurement of outsourced services by public institutions and mandated that all workers providing such services on-site be transitioned into permanent public positions within six months. We study the labor-market consequences of this abrupt and large-scale policy change using an administrative, linked employer–employee dataset. We find that workers who transitioned into public employment experienced higher wages and improved job security. At the firm level, private service providers with greater exposure to the reform faced higher exit rates and, if they survived, declines in employment, productivity, and profitability. In contrast, municipal-owned enterprises that internalized service provision became more productive and profitable. We also document modest positive wage spillovers in local labor markets. Overall, our results suggest that the outsourcing ban reallocated rents away from private service providers toward workers and public employers.

Keywords: public employment; outsourcing reform; labor market spillovers; firm dynamics; productivity (search for similar items in EconPapers)
JEL-codes: J31 J38 J62 L33 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2026-04, Revised 2026-04
New Economics Papers: this item is included in nep-ara
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