Working Paper: CEPR ID: DP5091
Authors: Jonas Vlachos
Abstract: It has been argued that the public sector is an insurance against otherwise uninsurable risks. If that is the case, it is reasonable to expect the public sector to be larger in regions where the private labour-market is risky. Using data from Swedish municipalities, this paper reports that labour-market risk has a substantial impact on public employment. The results for aggregate spending and taxation are, however, much weaker and labor-market risk thus affects the labour intensity of the municipal public sector.
Keywords: labour market risk; panel data; public employment; public sector size
JEL Codes: C23; H11; H40; J45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market risk (J49) | municipal public employment (J45) |
| labor market risk (J49) | aggregate municipal spending (H76) |
| labor market risk (J49) | municipal taxation (H71) |
| labor market risk (J49) | labor intensity of public sector jobs (J45) |
| economic shocks (F69) | public employment (higher labor market risk) (J68) |