Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: In this paper we investigate the determinants of municipal labour demand in Sweden 1988-1995. Utilising a major grant reform in 1993, through which a switch from mainly targeted to mainly general central government grants occurred, we are able to identify which type of grants that have the largest effects on municipal employment. We find a larger municipal employment elasticity with respect to grants before the reform, implying that the more freedom given to the municipalities, the less they seem inclined to spend on municipal employment. We further find (i) a short run wage elasticity of appoximately -0.5 and a long run ditto of approximately -0.9, (ii) a quite sluggish adjustment process: only 60% of the desired change in municipal employment is implemented in the first year, (iii) that the demographic structure is an important determinant of municipal employment, and (iv) that the behavioural pattern is different in "socialist" municipalities.

Keywords: municipal labour demand; panel data; median voter model; sluggishness

JEL-codes: H70; J45

42 pages, July 1, 1998

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Pål Bergström, Matz Dahlberg and Eva Johansson, (2004), 'The Effects of Grants and Wages on Municipal Labour Demand', Labour Economics, vol 11, no 3, pages 315-334

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