Treatment of employing and disemploying workers

Government projects may cause workers in the private sector to lose their jobs by replacing the functions they perform or, alternatively, to be hired away from the private sector in order to work on the project. Similarly, new regulation may decrease employment in some sectors of the economy and increase employment in others. This chapter attempts to clarify these situations through a simple illustration: a city that is building a subway that will replace an existing privately owned bus system. It first examines what happens when private sector workers (for example, the bus drivers) lose their jobs as a result of a government project. In doing this, it assumes that new jobs are available to these workers, although sometimes not immediately. The chapter then examines hiring persons to work on the project (such as construction workers needed to build the subway) from a labor market in which there is considerable unemployment.