IMF Paper: Government Jobs Crowd Out Private Sector Employment


What happens to private sector employment when public employment goes up? A new working paper from researchers at the International Monetary Fund points to global data showing that the public sector gains are private sector losses. The researchers looked at data from 194 developing and advanced countries between 1988 and 2011 and found "robust evidence that public employment crowds out private employment."

The paper finds that statistically, it's essentially a one-to-one relationship, when the entire sample is considered: "A public job typically comes at the cost of a private sector job, and therefore does not reduce overall unemployment." The authors also point to previous research finding similar "full crowding out" in studies that look only at OECD countries.

This has potential implications for stimulus. While fiscal stimulus programs often attempt to push money into the private sector—witness the money spent on private contractors in the 2009 Recovery Act—studies looking at the U.S. experience have found that virtually all of the reduction in unemployment associated with increased government spending on labor markets comes through increased government employment rather than private employment. The conclusions offered by the IMF paper's authors also jibe with research that has found that the stimulus program created or saved hundreds of thousands of public sector jobs at the expense of even more jobs in the private sector. 

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  1. Bbb…bu..bu.bbutt but MULTIPLIER!!!11!!one!

    1. Well, that’s the whole fault with this study right there! They didn’t add the multiplier. What multiplier, you ask? The one they say exists.

      1. Oh, there’s a multiplier, its just less than one and maybe less than zero.

  2. I’m stunned by this conclusion. Stunned, I tell you. Please, everyone stand back, I need some air.

  3. But, but, but public sector jobs were never intended to crowd out private sector jobs!

    How can the result differ from the intent?!?

    It doesn’t make sense!

  4. If we get rid of all those evil corporations, we’ll all be better off. Right?

  5. IMF Paper: Government Jobs Crowd Out Private Sector Employment

    Truly a stunning revelation. I’m speechless. /sarc

    1. It should be stunning. Well, not the conclusion, but the fact that the IMF published the paper instead of burning it and pissing out the fire.

  6. I’ll be on the fainting couch with a cool damp cloth on my forehead if anyone needs me.

  7. This is impossible. Interest rates have stayed low, therefore no crowding out has occurred. At all. The whole phenomenon is a myth on its best days and completely inapplicable to Obama’s stimulus.

  8. IMF Paper: Government Jobs Crowd Out Private Sector Employment

    Y’all do realize that to the garden variety progressive, this is a feature, not a bug. Right?

  9. So, if we take a dollar out of the private sector and put it into the public sector the net gain is . . . -1+1=0. Who woulda thunk. Oh hold it, I forgot government no longer “spends” money–it “invests” it. Therefore we need to add in the rate of return on the investment. Assume 10% return and we get . . . $1.10. What, I need to account for less investment in the private sector for the dollar that is no longer there? Ok, then we get -1.10+1.10=0 Again. Dangnumbit.

  10. Not a great day for keynesians if the IMF comes to this conclusion.

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