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

Increasing within-country disparities have led policymakers to deploy public employment reallocation as a place-based policy tool to support struggling
regions. This paper surveys the economics literature on capital relocations, purpose-built capitals, and public agency decentralization programs, synthesizing their effects on population, employment, and GDP. I find that while relocating capital cities can spur employment, GDP, and population growth in receiving regions, they entail highly unpredictable costs (3–12 percent of GDP) and uncertain environmental outcomes. Decentralization programs yield positive short-run public-to-private employment multipliers (around 0.7) stemming from the non-traded sector, but the long-term effect on the traded sector remains ambiguous. Local initial conditions seem to matter more than ex-post spillovers in determining multiplier size. Although more evidence is needed, sending regions do not seem to be extensively harmed when public jobs leave. Given the large share of government payroll in national expenditures, reallocating public employment may hold considerable potential for regional development in the future.