Wage and labor mobility between public, formal private and informal private sectors in a developing country

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Labor and wage in the public and private sectors are important factors in economies. In developing countries, the private sector is divided into formal and informal private sectors. Little research has addressed the changes in wage and labor among the public, formal private and informal private sectors over time within a single framework. We study the wage gap, labor mobility and the impact of changing employment sectors on wages by using the Oaxaca–Blinder decomposition and difference-in-difference (DID) methods with the Egyptian Labor Market Panel Survey data from 1998 to 2012. The decomposition shows that the wage gap between the public and formal (informal) private sectors has remained strong, with education, age and working experience being the driving forces. The DID method shows that the percentages and wage losses of movers from the formal private sector to the informal private sector are much higher and more significant than the percentages and wage losses of movers from the public sector to the informal private sector. In summary, Egyptian private sector employees face a high risk of unwillingly falling into and staying in the informal private sector, while the highly educated employees are only attracted to and stay long term in the public sector. These results demonstrate likely obstacles for further economic growth and the stability of the Egyptian economy and have implications for other developing and Arab countries with a sizeable public sector. The government may need to restructure wage systems, employment practices and cultures to strike a balance between the public and private sectors, providing people with incentive schemes and education to nurture (formalize) the formal (informal) private sector.