Ownership type and earnings gap decomposition: Evidence from the Ghanaian labor market

Abstract

AbstractWe present evidence of sector earnings gap decomposition in the Ghanaian labor market for the period 2009–2015. With a sample of 200 workers from state‐owned enterprises (SOEs) and 250 from privatized enterprises (PEs), we use the Mincerian wage equation, with the Oaxaca–Blinder and Juhn–Murphy–Pierce decompositions on earnings, and observe that the two ownership categories differ regarding personal characteristics and institutional factors, with employees in PEs receiving a wage premium (64%) over their SOE counterparts. In addition, employee observed characteristics explain only 36% of the earnings differential. The PE‐SOE differential is small at the top quartiles compared with previous studies. However, individuals at the bottom of the wage distribution in the public sector earn far lower than their counterparts in the private sector, signaling that low‐level SOE workers have not gained much despite the single spine salary structure policy initiated by the Government in 2008 to bridge the wage gap. This study contributes to wage analysis and decomposition by focusing on individual and institutional factors—personal characteristics, sector, and government policy—that are traditionally not combined in extant literature.