There is little doubt that the government activities play an important role in the
modern economy. Government influences the economy via several instruments, such as
fiscal policies and monetary policies. Public sector employment, which accounts for a
considerable share of total employment in many economies, is an important tool of fiscal
policy and has attracted a great deal of attention over the past two decades (Gregory &
Borland, 1999). Today bloated bureaucracies and over-staffed public enterprises are very
common problems in developing countries, especially in transition economies, where the
shift from plan to market requires millions of workers to be relocated. An excessive
number of ministries, duplications of functions, or the existence of ghost workers has
been identified as major instances of unproductive spending (Rama, 1997). Consequently,
retrenchment of public sector employment is becoming an important issue of economic
reform in these countries.