The Potential of Public Employment Reallocation as a Place-Based Policy

This study explores public employment reallocation as a place-based policy to address regional economic disparities. It begins with a historical overview cataloging purpose-built or relocated capital cities and global decentralization efforts, focusing on those that fulfill the characteristics of a place-based policy aiming at promoting equitable development. I then review the economics literature on the cases cataloged and find that recent public employment relocation policies positively impact relocation local labor markets, yielding an average multiplier of 7 private jobs per 10 public jobs relocated. Next, I present new evidence of Germany’s ”Homeland Strategy 2015” initiative run by the Bavarian state government, which aims to relocate over 3,000 public sector jobs from Munich to economically lagging regions by 2025. This policy is one of the first to employ a structural index based on five demographic and economic indicators to determine relocation districts. Utilizing a novel, manually constructed dataset and a quasi-experimental design integrating long differences estimation and Mahalanobis distance matching, I find that treated municipalities experienced a statistically significant 0.9 percentage point increase in employment shares by 2019, and a decrease of 0.3 percentage points in unemployment shares in 2018 compared to control municipalities. The total population in treated municipalities increased by 1.3 percent in 2019, with an even more pronounced effect on the working age population. Preliminary findings also suggest that the relocation program benefited sending locations, with an increase in employment share, a decrease in unemployment share, and an increase in the working age population share. However, these results should be interpreted cautiously due to the varying sizes of the municipalities involved. The results indicate that strategically reallocating public sector jobs can revitalize local labor markets without significantly harming sending locations. However, the average multiplier effect of 7 additional private sector jobs per ten public jobs reallocated across studies in the literature reviewed is modest compared to other place-based policies.