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The impact of public employment: evidence from Bonn

Becker, Sascha O., Heblich, Stephan and Sturm, Daniel M. (2021) The impact of public employment: evidence from Bonn. Journal of Urban Economics, 122. ISSN 0094-1190

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Identification Number: 10.1016/j.jue.2020.103291

Abstract

This paper evaluates the impact of changes in public employment on private sector activity using the creation of the new West German government in Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment affects private sector employment through its impact on wages and house prices and also through potential productivity and amenity spillovers to the private sector. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industry and creating just over one additional job in other parts of the private sector. We show how our model can explain this finding and provide several pieces of evidence for the mechanisms emphasized by the model.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-u...
Additional Information: © 2020 Elsevier B.V.
Divisions: Economics
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HC Economic History and Conditions
JEL classification: F - International Economics > F1 - Trade > F15 - Economic Integration
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J45 - Public Sector Labor Markets
N - Economic History > N4 - Government, War, Law, and Regulation > N44 - Europe: 1913-
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Date Deposited: 18 Feb 2021 10:03
Last Modified: 20 Aug 2021 02:45
URI: http://eprints.lse.ac.uk/id/eprint/108867

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