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What Drives Public Employment?

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  • Dani Rodrik

Abstract

Excessive levels of government employment is one of the most frequent complaints made about public-sector governance in developing economies. The explanation typically offered is that governments have used public-sector employment as a tool for generating and redistributing rents. This paper suggests an alternative hypothesis for government employment practices: relatively safe government jobs represent partial insurance against undiversifiable external risk faced by the domestic economy. By providing a larger number of secure' jobs in the public sector, a government can counteract the income and consumption risk faced by the households in the economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on the (partial) correlation between government employment and exposure to external risk is robust against the alternative hypothesis that government employment has been driven by considerations of rent-seeking and rent distribution.

Suggested Citation

  • Dani Rodrik, 1997. "What Drives Public Employment?," NBER Working Papers 6141, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6141
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    References listed on IDEAS

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    1. Rama,Martin G., 1997. "Efficient public sector downsizing," Policy Research Working Paper Series 1840, The World Bank.
    2. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    3. Bourguignon, F. & Lambert, S. & Suwa-Eisenmann, A., 1996. "Distribution of Export Price Risk in a Developing Country," DELTA Working Papers 96-11, DELTA (Ecole normale supérieure).
    4. Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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