Are Public Sector Workers in Developing Countries Overpaid? Evidence from a New Global Data Set

Abstract

This paper examines the public sector wage premium using nationally representative household surveys from 91 countries. The public sector generally pays a wage premium compared to all private sector salaried employees, but the size of the premium is sensitive to the choice of the private sector comparator and varies considerably by worker characteristics. For most countries, the average premium disappears when the public sector is compared to only formal sector private employees, especially when controlling for occupation. The public sector wage premium is higher for women and low-skilled workers. In contrast, high-skilled public sector employees are most often paid the same as their private sector counterparts or may even pay a penalty for working in the public sector. Consistent with this, the public sector premium is greater for employees with less education, those working in lower paid occupations, and those whose earnings fall in the lower part of the conditional earnings distribution. Across countries, the wage premium is only weakly associated with countries’ level of development. These findings nuance the existing consensus that public sector workers tend to enjoy a significant wage premium over their private sector counterparts, and that this premium is especially large in low-income countries.