Redistribution Through Public Employment: The Case of Italy

Abstract

This paper examines the regional distribution of public employment in Italy. It documents two sets of facts. This first is the use of public employment as a subsidy from the North to the less wealthy South.We calculate that about half of the wage bill in the South of Italy can be identified as a subsidy. Both the size of public employment and the level of wages are used as a redistributive device. The second set of facts concerns the effects of a subsidized public employment on individuals' attitudes toward job search, education, "risk taking" activities etc. Public employment discourages the development of market activities in the South.

Public employment and political pressure: The case of French hospitals

“…They also find an initial positive correlation between government employment and local unemployment, although this is not robust to the inclusion of State dummies. Along similar lines, Alesina et al (2001) argue that public-sector employment is excessive in the South of Italy, as compared to the North, and as a consequence public service production in the South is far less efficient than in the North. They conclude that half of the public wage bill in the South represents redistribution, either in the form of inefficient employment or excessive wages.…”

The effects of public sector employment on the economy

“…For other countries, especially in Europe, taxes are generally collected at the national level, even when public employees are unevenly distributed across the country. In this case, in addition to higher public employment, the result can be a redistribution of resources [13], which may then lead to a different type of equilibrium that includes higher wages for the private sector. For example, one study shows that higher local public sector employment leads to higher wages in the UK and, at the same time, to a higher demand for goods and services produced by the nontradable sector [5].…”

Marshallian labour market pooling: Evidence from Italy

“…Thus, the opportunity cost of migration are high in Italy relative to the us (where the family network is much weaker) or other European countries (with a stronger welfare state not based on family ties). There is also evidence that labor mobility has been discouraged by the generous provision of public funds (government social transfers, which include unemployment benefits, social assistance, regular and invalidity pensions and health payments; Brunello, Lupi, and Ordine, 2001) and public sector jobs (Alesina, Danninger, and Rostagno, 2001) deployed in lagging (Southern) regions in the last decades.…”