Wage Rates and Job Queues: Does the Public Sector Overpay in Ethiopia?

Abstract

The public sector's share in wage employment is higher in Africa - including Ethiopia's urban labor market - than in developed economies. Fuller unionization, greater job security, and more generous non-wage benefits in the public sector lead one to assume that workers might queue up for public sector jobs. Do higher wage rates in Ethiopia's public sector create such a queue? The author extends Lee's two-stage structural probit analysis to test (with data from a recent urban household survey) and measure the existence and scope of such a queue for public sector jobs in Ethiopia. The results reject the absence of job rationing in favor of an implicit queue of most private sector workers for public sector jobs. The queue exists mainly because of popular expectations of a wage premium (between 11 and 40 percent) in the public sector. Controlling for individual differences in expectations of the sectoral wage differences, the author finds that skill does not significantly affect a worker's sector preferences, but some social characteristics do. A worker with a traditional farming background is more likely to be in the queue than is a second-generation urban dweller. This is interesting, considering that the influx of rural migrants to urban centers in the last few decades has been partly fueled by hopes of public sector employment. On average, women are more likely than men, and workers in provincial towns more likely than workers in the capital, to prefer public sector jobs. Level of schooling and job experience do not seem to affect preferences for the public over the private sector. The probability of a worker's being selected from the public sector queue decreases with the wage rate the worker potentially commands as a public sector employee. Workers on the lower end of the pay scale are more likely to be selected. Among workers who join the queue for public sector jobs, men are more likely to be hired than women and skilled workers are more likely to be hired than less-skilled workers.