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, and discuss the implications for countries in the Middle East, North Africa, Caucasus and Central Asia. These countries simultaneously display high unemployment rates, low private-sector employment rates and high proportions of government-sector employment. 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.

Employment matters for development because it can raise household income, lower inequality, promote economic growth, and contribute to political stability. Many countries have high rates of public employment, but what effect does this have on overall employment and unemployment rates? This paper investigates if and to what extent public-sector employment crowds out (reduces) private-sector employment. In particular, we estimate regressions of unemployment or private-sector employment on two measures of public-sector employment. The study uses an especially assembled dataset, which is novel for its coverage of a large sample of developing countries as part of a panel of rich and poor countries. Our results point to full or just about full crowding-out for the entire sample. Unlike previous cross-country studies, which were restricted to advanced economies, we are able to show that these results also apply to developing countries, although crowding-out may not be quite as high as in advanced economies. The results mean that high rates of public employment have an offsetting large negative impact on private employment rates and do not reduce overall unemployment rates. With the qualifier that government activities may help the economy in other ways, our results imply that, rather than creating public-sector jobs, scarce fiscal resources could be better spent on other developmental needs.

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, and discuss the implications for countries in the Middle East, North Africa, Caucasus and Central Asia. These countries simultaneously display high unemployment rates, low private-sector employment rates and high proportions of government-sector employment. 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.

This report synthesizes the findings from several areas of work undertaken to assess what impact public sector employment has had on both the level and structure of employment. It also examines the impact of the public sector as employer on the labor market from two viewpoints: the level and share of public sector employment and the structure of this employment. First, an operational definition of the regular public sector is provided that has been used for collecting and classifying the data. Second, the findings of the regular public sector studies are summarized, e.g., levels, shares, growth rates of public sector employment and its distribution by various characteristics, as well as its relation to expenditure level. Third, the findings of a study on temporary direct job creation are used to illustrate the extent to which these programs can focus on special employment groups. Fourth, the implications of these two sets of findings for altering the aggregate level of employment are considered. Finally, some implications for altering the structure of employment are presented. (An appendix provides a table illustrating employment in general government in Organisation for Economic Cooperation and Development economies, 1960-1979.) (YLB)

The role of the public sector-theory and stylized facts; The public sector-paradigm lost; Empirical studies.

This paper examines the changes over time in public sector wages and employment relative to private sector wages and employment using data from surveys of establishments and individuals. The paper finds that:(1) The pay of public sector workers relative to private sector workers varies greatly over time. Contrary to the view that public sector payis inflexible, variations in relative pay are due as much to fluctuations in public pay as to fluctuations in private pay.(2) The relatively high paid public sector worker of the early 1970s has within the span of a decade lost much of his or her advantage over otherwise comparable private sector workers, seriously denting if not destroying the picture of the 'overpaid' public employee which developed in the early 1970s.The group of public sector workers who tend to be most highly paid in the U.S. relative to private sector workers are blacks and women, suggesting that the public sector discriminates less than does the private sector.(3) Differentials in public and private sector pay vary greatly depending on the nature of comparisons, with for example Current Populations Survey comparisons of individuals with similar broad human capital showing federal employees to be higher paid than private employees and Bureau of Labor Statistics surveys of wage rates in particular occupations showing federal workers to be lower paid.(4) Public sector employment follows a very different pattern of change than private sector employment. It has smaller annual variation, and moves counter cyclically rather than cyclically. In terms of demographic composition the public sector employs relatively more blacks and women than the private sector.