Abstract
Do public sector firm ownership and lack of competition matter for wages and employment? To address this question, we consider a large public-sector company that is privatized. Using personnel records, we find employment contract liberalization to generate relative wage losses for older, high-tenure, low-skilled, part-time workers, permanent residents, and women. Employment reductions mostly affect the same groups experiencing a wage decline. Overall, wage liberalization leads to an increase in wage inequality of between |$6\% $| and |$9\% $|, which—if applied to the whole public sector—would lead to a |$52\% $| to |$76\% $| closure of the “inequality gap” between the private and public sectors in Europe. Our results suggest that differences between public- and private-sector wage structures found in descriptive studies are to a large extent causal rather than the result of selection into these sectors and that public sector employment and career path regulations limit a firm’s ability to maintain a competitive workforce.
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