Abstract:

Raising the level of public employment is a frequently used policy instrument to support economically lagging regions. This column evaluates the impact of changes in public employment on private sector activity using the creation of the West German government in Bonn as a source of exogenous variation. It finds that relative to a control group of cities, public employment increased substantially in Bonn, but this led to only a modest increase in private sector employment. This suggests that public sector jobs may not be a magic bullet to kickstart local economies.