Employment, privatization, and managerial choice: Does contracting out reduce public sector employment?

We examine the effects of governments' use of alternative service provision on public employment using panel data from a nationally representative sample of local governments. We model the effects of alternative service provision on the size of the public workforce and hypothesize that alternative provision jointly impacts both full- and part-time employment. We find evidence of an inter-relationship between these employment types. Our results from seemingly unrelated and 3SLS regressions indicate that full-time employment in the public sector declines when additional services are provided by for-profit providers, while part-time employment increases. The net employment effect in the public sector is negative when government services are moved to the for-profit sector. These combined effects result in a compositional shift toward more part-time public sector employment.