Abstract
The conventional approach to the question of public sector impact on a region’s economy is to focus on public investment as a causal force behind economic growth and development. The purpose of this paper is to investigate the impact of another, relatively neglected aspect of public sector activity on local economic well-being. This paper is focused on public sector employment as a determinant of the level of regional income. More specifically, our objective is to identify the relationship between non-federal government employment and wage incomes within a region, and to examine for diffei entials in this relationship among areas which vary in size (population). The results generated provide evidence on the role of government employment as an instrument for regional development. The paper would also assist in appraising the potential effects on a local economy of significant reductions in public sector employment, such as would result from mandated tax cuts, or from other government spending constraints.
Highlights
The conventional approach to the question of public sector impact on a region's economy is to focus on public investment as a causal force behind economic growth and development.' The purpose of this paper is to investigate the impact of another, relatively neglected aspect of public sector activity on local economic well-being
By excluding the sales equation, private sector output is held constant and the area income effect of public employment (AIE) measures the primary impact of public sector employment on wage income, assuming that wage income resulting from public sector employment does not induce indigenous private sector activity.® The second estimate of the AIE is derived from the simultaneous estimation of parameters of all five equations, including the sales equation (14)
In order to derive the AIE,the coefficient of government employment in equation (8)is multiplied by the coefficient of total employment in the wages and salaries (WI) equation (5),or(2.410)(7.235)= 17.436
Summary
TO REGIONAL SCIENCE, Englewood Cliffs. New Jersey: Prentice Hall, 1975, pp. 380-83. 20. Neter and Wasserman.(pp. 160-66)explain the ra tionale and application ofinteraction analy.sis based on dummy variables. See John Neter and William MODELS, Homewood, Illinois: Richard D. Irwin, 1974. pp. 160-166.
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