Commentary

Private sector jobs are lost when government creates public sector jobs

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Here’s a story in National Review. (H/T ECM)

Excerpt:

In this paper, published in Economic Policy Journal, economists Yann Algan, Pierre Cahuc, and Andre Zylberberg looked at the impact of public employment on overall labor-market performance. The authors use data for a sample of OECD countries from 1960 to 2000, and they find that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased overall labor-market participation slightly, and increased by about 33 the number of unemployed workers.

Their explanation is that public employment crowds out private employment and increases overall unemployment by offering comparatively attractive working conditions. Basically, public jobs that offer higher wages, require low effort, and offer attractive fringe benefits attract many workers and crowd out private jobs. This is especially true when the public jobs exist in the private sector (transportation and education, for instance). The impact is bigger when these new employees are paid with new taxes.

The bottom line is that it is possible that, by increasing public employment, the stimulus money is further hurting private jobs.

And that’s why the unemployment rate is so high after a government spending-spree. The money for non-productive public sector jobs come from the productive private sector.

10 thoughts on “Private sector jobs are lost when government creates public sector jobs”

  1. Question: Is it true that government employees are paid more than their private sector equivalents? I work for a university and do a job that can be done in the private sector as well. If I could get this job in the private sector, my income would likely increase by 50%. From my experience, public employees make less than their private counterparts make, but I don’t know if that’s just true from my experience or if it’s actually true. Do you know?

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    2. Stan — maybe not all university workers. You probably gotta be part of a big public sector union. Politicians find it easier to vote for big raises funded by future taxpayers’ money than fight a union on their watch. Plus, those on the delusional left think everyone is at least in theory entitled to generously large salaries and benefits. So, they try to “make it happen”.

      You should be seeking work in the private sector, or, if you want to go over to the dark side, a cushy public sector unionized government job-for-life.

      You’ll never have to worry about your teeth again.™

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  2. I do know that school teachers employed by the government where I live earn substantially less than teachers who work at private schools. Doctors who work at government hospitals also earn far less than those who work at private hospitals. Parents and patients are prepared to pay a lot more for private sector education and health care because it’s generally of a higher standard, so the teachers and doctors get paid more. Is it different there?

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  3. Right, “that Mary”!. In both Canada and the US governments at both the state and federal levels have huge liabilities for the generous pensions granted state and federal workers. All government jobs come with generous benefits plans, etc. Generous time off, leaves, etc. Some unions have negotiated the banking of unused sick days, so they can get paid for these days as well.

    In Ontario, when we went from the PST to the HST, the provincial PST workers all got generous severance bonuses when the jobs were reassigned from the provincial government to the federal — they didn’t lose a day’s pay, and their jobs were not for one moment in jeopardy! Still, the provincial government saw fit to give them $50-$60K severance allowances. All paid for of course by taxpayers.

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