Interaction of public and private employment: Evidence from a German government move

Abstract

We use the German government move from Bonn to Berlin in 1999 to explore the interaction between public and private sector employment within a local labor market. Our findings show a positive effect of public sector expansion on private sector employment, with a local multiplier of 1.32–1.35, mainly driven by the service sector. The policy impact is highly localized, strongest within 300 m of a relocation site, and evident one year after the relocation. Three quarters of new private sector jobs were created by establishments that did not exist before 1998. These newly created jobs disproportionally employ women, younger workers, individuals in managerial and professional roles, and those with lower levels of education.