Earnings differentials in Botswana's labour market: private versus public sector

Abstract

The paper investigates earning differentials in the Botswana Formal Labour Market comparing the private and public sector earnings. The analytical framework used is an extension of the Mincerian earnings function and uses 2002/03 HIES data. Results show that the private sector earnings are on average more than the public sector. The human capital variables have a stronger effect on earnings determination in the private sector than the public sector and earnings differentials are higher in the private sector. All the variables have the right signs and were significant except marital status. The results imply that earnings differentials significantly contribute to the general income inequality in Botswana. Therefore any efforts towards curbing income inequalities should take into consideration the labour market policies. Efforts should be made to strengthen labour employed in the private sector through education and encouragement of unionisation and creation of more jobs.