PUBLIC AND PRIVATE EMPLOYMENT OVER THE BUSINESS-CYCLE - A RATCHET THEORY OF GOVERNMENT GROWTH

Previous researchers have attempted to explain the growth in the size of government over time. Some have observed a ''ratchet'' effect and h ale attributed these observed jumps in the relative size of government to ideological shifts in response to severe crises. We explain these observed ratchets as the consequence of asymmetries in the response of government employment to the business cycle. A public-choice oriented model of the employment response to the cycle is developed and applie d to stare and local government employment data. The data confirm the presence of ratchet effects that correspond to the business cycle. Mor eover, virtually all of the growth in the ratio of slate and local gov ernment employment to private employment has occurred during recession s.