Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?
IMF Working Papers, June 12, 2013
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- Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?
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Bibliographic details
- Authors: Alberto Behar, Junghwan Mok
- Published: June 12, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484329412.001
Summary
- We quantify the extent to which public-sector employment crowds out private-sector employment using specially assembled datasets for a large cross-section of developing and advanced countries.
- Regressions of either private-sector employment rates or unemployment rates on two measures of public-sector employment point to full crowding out.
- This means that high rates of public employment, which incur substantial fiscal costs, have a large negative impact on private employment rates and do not reduce overall unemployment rates.
Key findings
- Regression results point to full crowding out of private-sector employment by public-sector employment.
- High proportions of government-sector employment are associated with:
- low private-sector employment rates, and
- high unemployment rates.
- High public employment rates incur substantial fiscal costs while failing to reduce overall unemployment rates.
Data, scope, and subject focus
- Data: Specially assembled datasets covering a large cross-section of developing and advanced countries.
- Regional focus and implications discussed: Middle East, North Africa, Caucasus and Central Asia (MCD countries / MENAP country contexts).
- Subject tags (as provided): Employment, Employment rate, Government debt management, Labor, Public employment, Public financial management (PFM), Unemployment.
- Keywords (as provided): C. private-sector employment, CCA country, Crowding out, crowding-out effect, Employment, employment dataset, employment equation, employment rate, Employment rate, Government debt management, labor force, MCD countries' employment data, MCD country, MENAP country, Middle East, Middle East and Central Asia, outcomes in the MCD, private sector, private-sector employment, Public employment, Unemployment, WP.
Policy implications and interpretation
- Public-sector employment expansion is not an effective tool to lower aggregate unemployment where crowding out is full.
- Fiscal costs associated with high public employment must be weighed against limited or negative impacts on private employment and overall unemployment reduction.
- For countries exhibiting simultaneously high unemployment rates, low private-sector employment rates, and high government-sector employment, policy emphasis should consider fiscal sustainability and measures to support private-sector job creation rather than expanding public employment.