Tag Archives: public sector

Research with Impact: Economics, Mathematics and Statistics

Through the REF 2021 rankings, we were pleased to see our impact results in Economics, Maths, and Statistics demonstrate a significant improvement from 2014, with 33% of our impact work ranked world-leading, 50% internationally excellent, and the remaining 17% internationally recognised. Discover our research case studies below. Visit the REF website for full details.

Demographic structure and economic trends: planning for Europe’s financial future

According to a 2019 OECD report, Fiscal Challenges and Inclusive Growth in Ageing Societies, ‘The number of people over 65 for each working-age person will at least double in most G20 countries by 2060′. This is important because age groups differ in their savings behaviour, productivity levels, labour input, contribution to innovation, and investment opportunities. Research by Professor Yunu Aksoy and Professor Ron Smith offered new insight into the specific nature of these differences as well as providing an innovative theoretical model for predicting future trends. Taken up by central banks around the world, this work has contributed to an increased focus on demographics amongst the global central banking community and influenced fiscal policy decisions in a number of countries.

Notably, a 2017 secondment to the Bank of Spain allowed Professor Aksoy to develop his research, to publish alongside Bank economist Henrique Basso, and to help answer the question of ‘how to adapt fiscal and social policies to demographic changes’, identified by the Bank’s head of research as ‘one of the most important issues’ that the Bank is currently facing. Basso went on to sit on a European Central Bank taskforce charged with investigating the future of pension schemes in the EU (a multi-billion-Euro question), which drew directly on Professor Aksoy and Professor Smith’s work to inform its research and recommendations. The work has also been invoked in German debates around immigration (where a recent policy change aimed to facilitate the entry of young, skilled workers to reinvigorate the country’s economy).

Making the right decisions for patients: competition, choice and inequality in publicly-funded healthcare

Successive UK governments have emphasised the importance of patient choice as a means for service users to voice and realise their preferences, and as a way to encourage competition in markets for publicly-funded healthcare. Dr Walter Beckert’s work on patient choice has challenged the assumption that increasing competition helps to improve care provision, showing that competition can reinforce existing inequalities between demographic groups and that patients often turn for guidance to primary healthcare practitioners who have competing priorities of their own.

Dr Beckert is an academic panel member for the Competition and Markets Authority (CMA) and his research has shaped the methodology used by the CMA to analyse the impact of hospital mergers, therefore influencing each of the eight hospital merger decisions made by that body since its first in 2013 (determining the allocation of at least £560 million in public money). More broadly, Dr Beckert’s work with the Health Foundation, a campaigning charity, has helped to change opinion within the sector as to the value of competition and has contributed to a strategic shift away from competition and towards a more collaborative approach to service delivery, as realised in the 2019 NHS Long-Term Plan. Health Foundation CEO Jennifer Dixon points out that ‘the reach of Walter’s work therefore potentially affects all the population in England – circa 55 million’.

New strategies for portfolio management: applying new estimates of equity yields and equity duration

Accurate estimates of expected rates of returns and investment time horizons are crucial for investment managers when it comes to assessing the risk and return characteristics of equity portfolios. Collaborative research originated by Birkbeck’s Dr David Schröder and continued in partnership with Florian Esterer, an asset management professional, proposed a new method for predicting returns and estimating risk on individual shares, using earnings forecasts created by analysts across the market. They also proposed for the first time the concept of equity duration, which sits alongside the well-established idea of bond duration (a measurement of sensitivity to interest rate changes).

Analysts and investment managers at asset management firms across the financial sector took up Schröder and Esterer’s work, featuring the research in internal research reports and in some cases inviting them in to deliver in-person explanations. Feedback from the Head of European Qualitative Research at one of these major international firms described Schröder and Esterer’s research as ‘crucial’ in reframing its approach ‘to measuring the duration of global stocks’, demonstrating direct impact on the billions of pounds of assets that this firm holds under its management. Esterer was also able to put the research into practice at his own workplace, which also manages tens of billions in equity holdings.

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The economics of public sector employment

Our Dr Pedro Gomes has been researching public employment for nearly fifteen years. He shares why it is so important to understand how the public sector works and the key findings from his research.

Public employment is a significant consideration in any national economy. In developed countries, public employment makes up 15-30 percent of total employment and represents the large majority of government consumption. In the US, for example, the government spends 60 percent more on general government employees than on the purchase of intermediate goods and services.

The public sector also operates according to different rules than the rest of the economy, as governments do not face the same competitive forces, nor have the same objectives as private sector firms.

Considering that the public sector is responsible for delivering many key services in our society, from education to healthcare, it is essential to have a good understanding of how its employment operates. The recent COVID-19 pandemic has again put focus on the importance of having a modern public sector, with an employment force prepared to face difficult, unpredictable and unlikely crises, but its aftermath with high public debt, also puts emphasis on the costs of the public sector workforce.

Below are three of the key findings from my research into this area.

Governments hire disproportionately more educated workers

In the paper Public Employment Redux, my colleagues Pietro Garibaldi, Thepthida Sopraseuth and I explore the phenomenon whereby governments hire more educated workers than the private sector.

We noticed that governments hire very few workers with low qualifications. In the US, for example, one third of workers have a masters or a PhD qualification, and one third of these work for the government.  We documented empirical evidence for this education bias in the US, UK, France and Spain.

There are a few different explanations for this trend:

  • The government needs more educated workers to provide its highly technical goods and services, such as healthcare, education and the judicial system.
  • Higher educated workers take more of a wage penalty to work in the public sector, so are relatively less expensive to hire.
  • Public sector jobs that require low qualifications pay more than similar level jobs in the private sector, so they attract workers with more qualifications.

Within our model, we found that the technological skills needed for the public sector was the main driver of the disproportionate representation of educated workers, but that wage setting and excess underemployment explain 12-15 percent of the education bias.

Unlike other sectors, the government is able to set wages more freely, as the cost is financed from tax revenue. If the government chooses to pay very high wages, too many people will choose a skilled role in the public sector as their first choice. However, if wages are too low, too few workers will want to join the government.

In reality, a balance is needed, so the government can always attract the workers it needs, without leading to underemployment in the public sector.

Nepotism in hiring practices allows friends and family to ‘jump the queue’ for government roles

Public sector hires are often based on nepotism: Scopa (2009) found that the probability of working in the public sector is 44% higher for individuals whose parents also work in the public sector, while Colonnelli et al. (2020) found that politically connected individuals in Brazil enjoy easier access to public sector jobs.

In my research into this topic with Andri Chassamboulli, we suggest that workers can use their connections to find jobs in the public sector faster. We created a search and matching model with private and public sectors to test this theory.

Surprisingly, we encountered some positive side effects to nepotistic practices. Conditional on high public sector wages, our findings suggest that hiring through connections reduces unemployment, as people who do not have connections will instead find roles in the private sector. Conversely, if the government sets the optimal wage possible for the successful running of the public sector, nepotism is reduced.

We conclude, therefore, that nepotism is a symptom of a problem in the public sector, rather than the disease, and the problem is created when wages are set too high.

Women prefer working in the public sector

In most countries, the public sector hires disproportionately more women than men. My colleague Zoë Kuehn and I developed a model to try to make sense of this imbalance.

Our findings show that the gender imbalance in the public sector is driven by supply, meaning that women self-select to work in the public sector more than men. One explanation for this is that the type of job carried out by the government is coincidentally the type of work preferred by women, such as healthcare and education. However, even discounting these sectors, women’s public employment remains 20-25% higher than men.

This remaining imbalance can be explained by the different characteristics of public and private employment. The gender wage gap and working hours are both reduced in the public sector, making this an attractive choice for women who may be factoring family commitments alongside work opportunities in their choice of employment. Alongside reduced working hours, the public sector offers additional benefits such as more sick days, flexible hours and employer-provided childcare, ensuring an overall better work-life balance in the public sector.

 

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Why do women favour working in the public sector?

Research carried out by Birkbeck’s Dr Pedro Gomes and Professor Zoë Kuehn from the Universidad Autónoma de Madrid aims to understand why women self-select to the public sector.

The public sector is a large employer, accounting for between 10 and 35 percent of total employment in OECD countries. In most countries, the public sector hires disproportionately more women than men. With my colleague Zoë Kuehn, I developed a model to try and understand this imbalance.

Through the lens of our model, we view the gender bias in public employment as driven by supply, meaning that it is not the government that acts explicitly to hire more women, but it is women that choose the public sector more so than men. Our objective was to better understand this selection, in particular, how much of it is explained by public sector job characteristics that are related to management, organization and human resource practices in the public sector.

We documented gender differences in employment, transition probabilities, hours, and wages in the public and private sector using microdata for the United States, the United Kingdom, France, and Spain. We then built a search and matching model where men and women could decide whether to participate and whether to enter private or public sector labor markets. Running counterfactual experiments, we quantified whether the selection of women into the public sector was driven by: (i) lower gender wage gaps and thus relatively higher wages for women in the public sector, (ii) possibilities of better conciliation of work and family life for public sector workers, (iii) greater job security in the public compared to the private sector, or (iv) intrinsic preferences for public sector occupations.

A natural explanation for the gender bias in public employment could be that certain types of jobs that are predominantly carried out by the government could be preferred by women. However, our research revealed that, for the US, the UK, and France, once we exclude health care and education, women’s public employment is still 20-50% higher than men’s. Interestingly enough, the gender bias is less pronounced within public health care and public education compared to other branches of public employment.

Regarding transition probabilities, we estimated that the probability of moving from employment to inactivity is higher for women, but we found this probability to be significantly lower for public sector workers.

We also provided evidence that gender wage gaps and working hours are lower in the public sector. Individuals holding full time jobs in the public sector work between 3-5% fewer hours compared to similar individuals holding full time jobs in the private sector. However, fewer working hours are just one aspect of a better work-life balance (next to additional sick days, holidays, flexibility to work from home, employer provided child care etc.). In our model we wanted to capture differences in work-life balance across sectors in an ample sense, and hence we do not use these estimates to identify any parameters. Nevertheless, our results on fewer working hours in the public sector support the claim of a better work-life balance in the public compared to the private sector.

The results of our research suggest that women’s preferences explain 20 percent of the gender bias in France, 45 percent in Spain, 80 percent in the US, and 95 percent in the UK. The remaining bias is explained by differences in public and private sector characteristics, in particular relatively higher wages for female public sector workers that explain around 30 percent in the US and Spain and 50 percent in France. Only for France and Spain do we find work-life balance to be an important driver that explains 20 to 30 percent of the gender bias. Higher job security in the public sector actually reduces the gender bias because it is valued more by men than by women.

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