Government employment and local multipliers in Greek municipalities

This paper studies the impact of the remarkable increase in the share of public employment on the private sector across 156 Greek municipalities using Census data (1981-2011). To capture causal effects, we implement an instrumental variables approach, based on a shift-share design. We find that an additional job in the public sector creates nearly 0.7 jobs in the non-tradable sector (construction and services), whilst no significant effects are detected for the tradable sector (manufacturing). The findings appear to be robust to different estimation strategies, spillovers from contiguous regions, and to the inclusion of confounding factors. Importantly, we document that the most recent decline in the number of public servants did not significantly affect the private sector.

Automated summary

This paper examines the impact of the increase in public employment on the private sector in 156 Greek municipalities. The study finds that an additional job in the public sector generates almost 0.7 jobs in the non-tradable sector, but has no significant effects on the tradable sector. The research also shows that the recent decline in the number of public servants did not significantly affect the private sector.