Media Briefings

‘Strategic Hiring’: How The Scramble For Government Funds Results In An Overstaffed Public Sector

  • Published Date: January 2008

Competition for money among government-funded agencies may lead to excessive
public sector employment, according to new research by economists Dr Sebastian
and Professor Kai Konrad, published in the January 2008 issue of The
Economic Journal.
The phenomenon of ‘strategic hiring’, which is driven by
competition for funds, may explain why the public sector is typically more labourintensive
than the private sector.
Public bodies – such as universities, public theatres and opera houses, and regional
branches of public services – compete with each other for shares of the public
budget. Kessing and Konrad argue that the chief administrators of these
organisations hire employees strategically to improve their position in future
budget negotiations.
By employing excess staff in advance of budget negotiations, managers can argue
for a higher share of the budget. If every manager does this, each agency will be
overstaffed and other budget lines will suffer.
This ‘strategic hiring’ approach will not work in the private sector. It is typically easier
to detect overstaffing in divisions of a private company as profits will be consistently
lower than expected. Moreover, it is normally easier to fire workers in the private
sector, so strategic hiring will result in job losses elsewhere.
Kessing and Konrad also provide empirical evidence of such strategic hiring
incentives based on a survey conducted among professors at a major German
university. Public universities in Germany are characterised by extremely high
employment protection. The professors are civil servants for life and cannot be fired
even if the whole department or the whole university is closed.
The researchers asked questions about how vacated professorships are filled, the
most important form of hiring in the university system. More than four out of five of
the respondents said that their department can influence the replacement of a
professor. And more than 95% of them said that the replacement decisions are of
strategic importance for the future development of the department and the courses
offered. This suggests that respondents are aware of the strategic role of tenured
hiring decisions for the department and its future resources.
The researchers analyse how and why strategic hiring happens, and why it may
cause an unpleasant outcome. Suppose a chief administrator manages to hire a
considerable number of tenured staff. A public opera house may, for example, sign
long-term contracts with top-rate singers or dancers. When future budget
negotiations are coming up, its administrator can argue that the house has to honour
these contracts.
Moreover, he can argue that these artists will unfold their productivity and provide
good performance only if complementary inputs (such as stage equipment, adequate
stage designs, directors, proper heating, etc.) can also be financed by the
institution’s budget. The government has a significant incentive to increase the
agency's budget.
If many or all public agencies follow a similar behavioural pattern, the outcome is
rather unpleasant for all of them, as the total governmental budget does not grow
with the strategically inflated needs. None of them receives an increased budget
share, but they will all be overstaffed and perform below par.
If the division head of a private company adopts this strategy, it will typically not
work. Job tenure is lower in the private sector and employment will be adjusted more
readily to the company’s current needs. In addition, the division would incur losses if
the policy worked, and the division head would ultimately bear the cost of these
losses and would probably be fired.
This shows that job tenure in the public sector, and a difference in the objectives of
public administrators and company CEOs are important. Empirically, the public
sector is typically more labour-intensive than the private sector, and strategic hiring
may be one of the reasons.
Notes for editors: ‘Time Consistency and Bureaucratic Budget Competition’ by
Sebastian Kessing and Kai Konrad is published in the January 2008 issue of The
Economic Journal
Sebastian Kessing is at the Social Science Research Centre Berlin (WZB) and the
Free University Berlin. Kai Konrad is at the Social Science Research Centre
Berlin (WZB).
For further information: contact Sebastian Kessing on +49-30-25491-424 (email:; Kai Konrad on +49-30-25491-401 (email:;
or Romesh Vaitilingam on 07768-661095 (email: