An analysis of the public–private wage differential in the Palestinian labour market

Abstract

This paper measures and analyzes the dynamics of the public–private wage differential in the West Bank and Gaza for the period before and during the ‘second Intifada’ using data from the Palestinian Labour Force Survey (PLFS) of the Palestinian Central Bureau of Statistics (PCBS). Because the distribution of workers’ individual characteristics, such as skills, and the ‘returns’ to these characteristics may differ across workers, the wage differential is decomposed into two components: an ‘endowment’ effect and a ‘returns’ effect. The results show that in the pre-Intifada period, the wage gap between the public and private sectors narrowed in both the West Bank and Gaza. However, a sharp increase is seen after the outbreak of the Intifada. Moreover, most of this increase comes from an increase in ‘returns’ to skills composition in the public sector, (unexplained effect), rather than a change in the skills composition of public sector workers, (explained effect). Using recent econometric quantile regression techniques, the analysis of the public–private sector wage gap from 1998 to 2006, at various points along the wage distribution, shows that the wage premium, (penalty), for the public sector varies across the distribution, being higher, (lower), at the lowest end of the wage distribution and decreasing (increasing) along the wage distribution; it becomes negative in the top percentiles.