The multiplier effect of public employment on formal employment in the private sector: Evidence from Turkey*

Abstract

AbstractIn this study, we analyze the causal impact of public employment generation on formal employment in the private sector in the provinces of Turkey. Our results suggest that public sector employment has a positive impact on formal employment in the private sector. This result contradicts earlier findings in developed countries suggesting that public employment crowds out private employment. We argue that labor market institutions and local labor supply elasticity may have an important role in the direction and magnitude of the impact. We find that the positive impact comes from provinces with lower labor force participation or higher unemployment rates, which may be considered as proxies for elastic local labor supply.