Public-private Sector Wage Gap Research Articles

Understanding the public-private sector wage gap in Germany: New evidence from a Fixed Effects quantile Approach∗

The public-private sector wage gap is an important labor market indicator, reflecting sectoral differences in wage and recruitment policies. We provide new evidence on this sectoral gap throughout the wage distribution in Germany. Using data from the German Socio-Economic Panel (1984–2017), we decompose the wage gap and control for unobservable factors that endogenously determine the occupational sector choice. Our estimates confirm the result in the literature that women benefit from working in the public sector. For men, we find that they are unambiguously disadvantaged, with higher remuneration in the private sector across the entire wage distribution. This result contrasts with previous findings in the literature. Moreover, our findings show that taking endogenous selection into account substantially changes the decomposition of the gap, and it is crucial for assessing alternative policy measures. • We decompose the public-private sector wage gap in Germany over a long time span. • We adopt a novel approach that takes endogenous sector choice into account. • Women benefit from working in the public sector throughout the wage distribution. • Men are penalized for working in the public sector throughout the wage distribution. • Controlling for selection changes the assessment of alternative policy measures.

Impact of the 2008 wage review on the public-private sector wage-gap in Cameroon

This paper examines the impact of the 2008 wage review on the public-private sector wage-gap in Cameroon. Specifically, the paper evaluates the determinants of participating in the labour market and choosing formal sector employment; assesses the correlates of wages in the public and private sectors using the 2005 and 2010 Cameroon employment and informal sector surveys; and investigates the role of access to endowments and returns to endowments in explaining the public-private sector wage-gaps in 2005 and 2010. To achieve these objectives, the paper employs the bivariate probit model, Mincerian wage equations and the Neuman-Oaxaca decomposition approach. Results indicate that before and after the wage review, public sector workers enjoyed a wage premium over their formal private sector counterparts, more so after the review – registering an impact of 0.032 log points. Findings also reveal that the human capital variables – education and experience – solidly contributed in mitigating the public-private sector wage-gap. These results show that the 2008 wage review helped to augment the public sector wage premium in Cameroon over the period under study. These findings are useful inputs in animating public-private sector debates on human capital development and the structure of wages in developing country settings.

Public-private sector wage gap by gender in Egypt: Evidence from quantile regression on panel data, 1998–2018

Abstract This paper estimates the public-formal private wage gap in Egypt using Egypt Labor Market Panel Survey for the 20 year period of 1998–2018 for men and women separately. We estimate the public-formal private sector wage gap with wage equations including a public sector indicator both at the mean and at different quantiles of the conditional wage distribution using the panel feature of the data. We also address the endogenous employment and the sector of employment selection issue and find a persistent public wage penalty for the males and public wage premium for the females (except at the top) even after controlling for the observable and the time-invariant unobservable characteristics. We further examine the public wage gap over time and in different sub-samples by potential experience, skill levels and regions. Generally, the results are consistent with a decrease in the public wage gap for both men and women over the period considered. We further provide evidence on the quality of workers. We find that the public sector fails to attract better quality men throughout the conditional wage distribution while it manages to attract better quality women in the lower parts of the conditional wage distribution but not at the top, all on the basis of time-invariant unobservable attributes. These results indicate concern for the efficient provision of public services.

Public–private sector wage gap in a group of European countries: an empirical perspective

This paper investigates the impact of the great recession of 2007–2009 and the debt crisis on the evolution of wages in the public and the private sectors, and the changes in the public–private sector pay gap in a group of 26 EU countries. The results indicate that earnings decreased in both sectors in most of the analysed countries between 2008 and 2013. However, the decline in wages was mostly due to the differences in returns to workers’ and jobs’ characteristics while the endowment effect affected earnings in the opposite direction. The findings suggest that the overall public–private wage gap reduced or remained unchanged in the majority of the European countries over the crisis, which was due to diminishing differences in the observed characteristics of workers and their jobs as well as shrinking positive discrimination of public employees.

The impact of austerity measures on the public - private sector wage gap in Europe

Considering the year prior to the international and sovereign crises (2007) as a benchmark and studying all years until the crises receded (2013) in most of the 31 countries available in the European Union Survey of Income and Living Conditions (EU SILC), we examine the impact of public sector pay reforms on the public-private sector wage gap. We do so at the mean and along quantiles of the wage distributions, using decomposition methods to identify the explained and unexplained components of the gap. We code the pay reforms in the 31 countries into the categorical variables Freeze and Cut and consider their impact on quantile features of the wage gap using static and dynamic panel methods. Robust estimates suggest that public sector freezes and/or cuts had negative and statistically significant effects on the unexplained public-private sector gap, particularly evident at the median and the 90th quantile. At the 10th quantile, the impact of the measures was positive but statistically weaker. The 90th minus 10th quantile effects are negative, reflecting attempts by many countries to protect the low-paid, regardless of the initial public-private pay gap for this group. Countries which received external financial assistance had high pay gaps before the crises and displayed a variety of adjustments during the crises.

A detailed decomposition analysis of the public-private sector wage gap in South Africa

ABSTRACTThe present study examines the public-private sector wage gap in South Africa using individual cross-sectional data for 2000–14. Results from unconditional quantile regressions and generalised Oaxaca–Blinder type decompositions show that the wage gap is an inverted-U shape across the wage distribution. The ‘composition effect’ is more important than the ‘price effect’ at the bottom of the distribution while the opposite applies at the top. Key factors underpinning the ‘composition effect’ are unionisation, industry of employment and education, while those associated with the ‘price effect’ are education, race and occupation.

The public–private sector wage gap in Latvia

ABSTRACTThis study investigates the public–private sector wage gap in Latvia using microdata from the labour force survey. The severity of public sector wage cuts employed as a response to the economic crisis and subsequent recovery provides a test bed to analyse whether and how the public–private sector wage gap has adjusted after consolidation-driven wage cuts. Findings reveal that the observed wage gap is slightly in favour of the public sector; however, once differences in individual characteristics and selection effects are considered, results point to a private sector wage premium. Findings also suggest that the private sector wage premium has increased since the pre-crisis period. A significant private sector wage premium raises doubts on whether a system that is reliant on discretionary fiscal measures is efficient enough in eliminating unwarranted differences in wage. In particular, whether a re-adjustment process of public sector wages works after consolidation-driven wage cuts.

Public Versus Private Sector Wage Gap in Egypt: Evidence From Quantile Regression on Panel Data

This paper considers the public and private sector wage earners in Egypt and examines their wage distribution during 1998-2012 using Egyptian Labor Market Panel Survey. We estimate the public-private sector wage gap with Mincer wage equations both at the mean and at different quantiles of the wage distribution. In this process we take into account observable and unobservable characteristics of the individuals using the panel feature of the data with a fixed effects model. We address sector of employment selection issue for both males and females. We find that there is very little evidence of sample selection in our data. Therefore, we present both the selection corrected results and the results with no selection correction.We find a persistent public sector wage penalty for males and public sector wage premium for females in the face of extensive sensitivity checks. They are larger when unobserved heterogeneity is taken into account for males but insignificant for females. They are similar across the quantiles for males but, smaller at the top than at the bottom of the conditional wage distribution for females. We further examine the public sector wage gap over time and in different sub-groups according to age and education. The public sector wage penalty for males has decreased recently over time and is larger for the better educated and younger. We also find substantial regional differences in public sector wage gap for males.

A Detailed Decomposition Analysis of the Public-Private Sector Wage Gap in South Africa

The present study examines the public-private sector wage gap in South Africa using individual cross section data for 2000-7. Results from unconditional quantile regressions and generalised Oaxaca-Blinder type decompositions show that the wage gap is inverted-U shaped across the wage distribution. The 'composition' effect is more important than the 'price' effect at the bottom of the distribution while the opposite applies at the top. Key factors underpinning the 'composition' effect are unionisation, industry of employment and education, while those associated with the 'price' effect are education, race and occupation.

Decomposing the Public-Private Wage Gap for Nurses in the Philippines

In this study, we investigate the determinants of the public-private sector wage gap among nurses in Pampanga, Philippines. Using two estimation methods followed by a Oaxaca-Blinder decomposition of the wage differential, we study the extent to which this gap can be accounted for by differences in human and social capital endowments versus unexplained differences. Education, work experience, and active participation in the professional nursing association were found to have a significant effect on wages. Results of the Oaxaca decomposition highlight the bifurcated nature of the nursing labor market. Nearly 42% of the public-private wage differential was “unexplained” by differences in worker characteristics, suggesting that a significant portion of the gap may be attributed to differences in wage-setting regimes, market structures, and worker incentives between the public and private sectors.

Public-Private Sector Wage Gap in Australia: Variation along the Distribution

Previous research on public–private wage differentials in Australia has focused on the mean of the conditional wage distribution. Using six waves of the Household, Income and Labour Dynamics in Australia survey, this study employs quantile regressions to examine whether the sectoral wage effect varies along the wage distribution. For females, public sector wage premiums are relatively stable for almost the entire distribution. For males, they decrease monotonically and are negative for the top half of the distribution. The decomposition results show that the observed differences in individuals and job characteristics explain a substantial proportion of the sectoral wage gap.

Public and Private Sector Wages Interactions in a General Equilibrium Model

This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector.

Public and Private Sector Wages Interactions in a General Equilibrium Model

This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector. JEL Classification: C32, J30, J51, J52, E62, E63, H50

Public-Private Sector Pay Differentials in a Devolved Scotland

The public-private sector wage gap in Scotland in 2000 is analysed using the extension sample of the British Household Panel Study (BHPS). Employing a switching regression model, and testing for double sample selection from the participation decision and sector choice, the wage gap is shown to be 10 % for males and 24 % for females. For males this is mainly due to differences in productive characteristics and selectivity, while for females the picture is more ambiguous. Findings also suggest that there exists a male private sector wage premium. While there is no evidence of a sample selection bias for females, the sector choice of males is systematically correlated with unobservables. Furthermore, the structural switching regression indicates that expected wage differentials between sectors are an important driving force for sectoral assignment.

The unequal distribution of the public-private sector wage gap in Greece: evidence from quantile regression

Quantile regression analysis is used to estimate the public-private sector wage differential in Greece. The results suggest that wage differences between sectors are mainly attributed to the employee's endowment. The decomposition of the wage differential shows that the endowment component (characteristics differential) increases as we move up to the upper quantiles and the unobserved components decrease at higher quantiles. (The views expressed in this paper are those of the author and not those of the Bank of Greece.)

Public-Private Sector Wage Differentials in Scotland: An Endogenous Switching Model

The public-private sector wage gap in Scotland in 2000 is analysed using the extension sample of the British Household Panel Survey (BHPS). Employing an endogenous switching model, and testing for double sample selection from the participation decision and sector choice, the unadjusted wage gap is shown to be 10 per cent for males and 24 per cent for females. For males this is mainly due to differences in productive characteristics and selectivity. For females the picture is more ambiguous. Findings also suggest that there exists a substantial wage premium for male private sector employees. While there is no evidence of a sample selection bias for females, the sector choice of males is systematically correlated with unobservables. Furthermore, the structural switching regression indicates that expected wage differentials between sectors are an important driving force for sectoral assignment.

The public-private sector wage gap in Zambia in the 1990s: A quantile regression approach

We investigate the determinants of wages in Zambia and based on the quantile regression approach, we analyze how their effects differ at different points in the wage distribution and over time. We use three cross-sections of Zambian household data from the early nineties, which was a period of economic transition, because items as privatization and deregulation were on the political agenda. The focus is placed on the public-private sector wage gap, and the results show that this gap was relatively favorable for the low-skilled and less favorable for the high-skilled. This picture was further strengthened during the periosd 1991–1996.