Public Wage Research Articles

The Public Sector Wage Premium in Spain: Evidence from Longitudinal Administrative Data

This paper studies the public sector wage gap in Spain, by gender, skill level and type of contract, using recent administrative data from tax records. We estimate wage distributions in the presence of covariates separately for men and women in the public and in the private sectors, and we take advantage of the longitudinal structure of the data to control for selection. We find a positive public wage premium for men and women even after accounting for characteristics and endogenous selection; the observed average gap in hourly wages of 35 log points is reduced to 20 when accounting for observed characteristics, and to 10 once endogenous selection is also taken into consideration. We also find substantial variation in the public premium along the wage distribution once observed characteristics are accounted for. This variation, however, is offset by opposite patterns of selection into the public sector: while we observe positive selection into the public sector at the bottom of the wage distribution, workers at the top of the distribution select negatively into the public sector.

Public Employment and Compensation Reform During Times of Fiscal Consolidation

This paper compiles and compares recent and past measures introduced to contain the public wage bill in a number of emerging and advanced economies to assess their effectiveness in bringing down expenditure in a sustained way. In the aftermath of the Great Recession a number of countries have approved measures on the wage bill as part of fiscal consolidation efforts. These recent episodes are compared to past cases implemented in advanced economies over the period 1979–2009. Findings suggest that public wage bill consolidation episodes pre and post 2009 are similar in many respects. Moreover, typically countries that were able to achieve more sustained reductions in the wage bill have implemented to larger extent structural measures, and/or these measures were accompanied with substantial social dialogue and consensus.

Public Employment and Compensation Reform During Times of Fiscal Consolidation

This paper compiles and compares recent and past measures introduced to contain the public wage bill in a number of emerging and advanced economies to assess their effectiveness in bringing down expenditure in a sustained way. In the aftermath of the Great Recession a number of countries have approved measures on the wage bill as part of fiscal consolidation efforts. These recent episodes are compared to past cases implemented in advanced economies over the period 1979–2009. Findings suggest that public wage bill consolidation episodes pre and post 2009 are similar in many respects. Moreover, typically countries that were able to achieve more sustained reductions in the wage bill have implemented to larger extent structural measures, and/or these measures were accompanied with substantial social dialogue and consensus.

Fiscal composition and long-term growth

We assess the fiscal composition–growth nexus, using a large country panel, accounting for the usually encountered econometric pitfalls. Our results show that revenues have no significant impact on growth whereas expenditures have negative effects. The same is true for the OECD with the addition that government revenue has a negative impact on growth. From our results, taxes on income are less for growth enhancing, as well as public wages, interest payments, subsidies and government consumption, while spending on education and health boosts growth.

Greek public service employment relations: A Gordian knot in the era of sovereign default

Public sector employment relations are at the centre of the Troika’s programmes for Greece. These require a reduction of primary public expenditure by 10 percent of GDP, a total redesign of public services and massive privatizations. Public wages have been subject to incremental cuts, together with moves towards weakening the special status of public sector employment. It remains an open question whether the urgent pressure to reduce public expenditure through successive quantitative adjustments may result in successful structural reforms towards a leaner and more efficient public sector.

Public‐private wage gaps and skill levels: evidence from French, British and Italian micro data

PurposeThe authors aim to investigate public‐private pay determination using French, British and Italian micro data from the 2001 ECHP (European Community Household Panel) and estimate public/private wage differentials by country. By focussing on different countries, they exploit institutional differences to gain insights on the process of pay formation.Design/methodology/approachThe authors use regression techniques to compute the pay premium both at the average and at different education/skill levels. They then decompose the observed differences into a part due to characteristics and another part due to different returns between sectors, also at different quantiles of the wage distributions within skills.FindingsEven after controlling for observable characteristics, the authors find an overall positive wage differential for public sector workers in each of the three countries. As expected, the differential varies by skill. In general, the present findings do not fully support the view that the public (private) sector pays more (less) among the low skilled than the private (public) sector, and that the opposite is true for the highly skilled. The authors also document that the public pay premium varies as one moves up or down in the skill distribution.Practical implicationsOn the one hand, the authors’ results confirm that the public sector acts in general as a “fair employer”, compressing pay dispersion with respect to the private sector. On the other hand, the interactions of public and private labour market institutional arrangements play a crucial role in shaping the structure of relative wages across sectors. For example, when the monopsony power in wage bargaining is relevant in both sectors as, for example, in Britain, the private sector pays in absolute value proportionally less, and also the public wage premium is smaller.Originality/valueThis is the first attempt to use comparable data for three countries to analyse public/private wage differences by skill levels and to link the evidence with differences in public/private wage setting regimes.

Institutional determinants of public–private sector wages’ linkages

We estimate the probability of public sector wage leadership – defined as Granger causality from public to private sector wages – in a pool of 15 Organization for Economic Cooperation and Development (OECD) countries as a function of countries’ institutional features, and notably wage-setting institutions. Government's involvement in collective bargaining and collective bargaining centralization are positively correlated with the probability of finding public wage leadership. Among the factors that reduce its probability, we can underline the impact of globalization and the degree of unionization of the economy.

Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod

This paper uses an extended version of “FiMod—A DSGE Model for Fiscal Policy Simulations” (Stahler and Thomas Econ Model 29:239–261, 2012) with endogenous job destruction decisions by private firms to analyze the effects of several currently discussed labor market reforms on the Spanish economy. The main focus is on the firms’ hiring and firing decisions, on the implications for fiscal balances and on Spain’s international competitiveness. We find that measures aiming at reducing (policy-induced) outside option of workers, such as a decrease in unemployment benefits, public wages or, to a lesser extent, public-sector employment, seem most beneficial to foster output, employment, international competitiveness and fiscal balances. Decreasing the unions’ bargaining power also accomplishes this task. Our simulation suggests that reforming employment protection legislation does not seem to be a suitable tool from the perspective of improving international competitiveness. All measures imply (income) redistribution between optimizing and liquidity-constrained consumers. Our analysis also suggests that those reforms that are beneficial for Spain generate positive spillovers to the rest of EMU, too.

Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK

The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis is based on the estimation of a structural vector error correction model with quarterly non-interpolated data for the period 1981:1–2007:4. Initially, we estimate negative but barely significant effects on consumption of shocks to total public spending. Then, using the public spending breaking down, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure.

Recovery Risk and Labor Costs in Public–Private Partnerships: Contractual Choice in the US Water Industry

We use an ordered logistic model to empirically examine the factors that explain varying degrees of private involvement in the US water sector through public–private partnerships. Our estimates suggest that a variety of factors help explain greater private participation in this sector. We find that the risk to private participants regarding cost recovery is an important driver of private participation. The relative cost of labour is also a key factor in determining the degree of private involvement in the contract choice. When public wages are high relative to private wages, private participation is viewed as a source of cost savings. We thus find two main drivers of greater private involvement: one encouraging private participation by reducing risk, and another encouraging government to seek out private participation in lowering costs.

What drives a successful fiscal consolidation?

Fiscal consolidations are currently in the agenda of fiscal authorities in many countries. Using Bayesian Model Averaging to overcome the problem of model uncertainty, we find that growth-enhancing policies and cuts in public wages are the most appropriate ingredients for successfully reducing debt levels and budget deficits.

The cyclicality of consumption, wages and employment of the public sector in the euro area

This study empirically examines the business cycle behaviour of public consumption and its main components, the public wage bill (including its breakdown into compensation per employee and public employment) and intermediate consumption, in the euro area aggregate, euro area countries and a group of selected non-euro area Organization for Economic Co-operation and Development (OECD) countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1–2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments, but also point to an important role of pro-cyclical discretionary fiscal policies.

Social welfare through guaranteed wage employment: experience of National Rural Employment Guarantee Scheme in an Indian state

Recognition of the significance of public wage employment programmes in tackling unpredictable community “covariate” shocks and ensuring livelihood security of the rural poor has led to the enactment of the Mahatma Gandhi National Rural Employment Guarantee Act, with state guarantee of work. Implementation of the Act, our empirical findings tell us, has become the site of tangible exchanges between state and society, with factors such as the level of material support for it, the balance of power between the local state and the poor on the ground, and the larger socio-economic structure determining programme outcomes.

Are government wages interlinked with private sector wages?

The ongoing fiscal and financial crisis with significant macroeconomic imbalances in the euro area raises the question in how far public–private wage interaction and even wage spirals contribute to fiscal and competitiveness problems. In this vain we analyse empirically whether the evolution of public sector wages is decoupled from that of the private sector. Using data for number of OECD countries, we find: (i) a strong and extremely robust positive annual contemporaneous correlation of public and private sector wages over the business cycle; (ii) evidence of co-movement of these variables over the medium and long run. From a policy perspective, the findings of this study suggest public wage restraint and private wage flexibility coupled—where needed—with institutional reform to prevent or break public–private wage spirals.

The Effect of Public Wages on Corporate Compensation in Hungary

I identify wage spillovers from the public to the corporate sector with the help of a large and sudden public sector wage increase, which raised real compensation by 40 percent in two years, changing the average public wage premium from minus 10 to plus 12 percent. Using a dataset covering about 7 percent of Hungarian workers and their employer, the spillover effect is identified with the variation of the share of public sector employment within groups defined by gender, experience and occupation. The analysis shows that 10 percent higher share of public sector workers within worker-type induces an additional wage growth of 15-20 percent around the wage increase. Controlling for firm (worker spell) fixed effects does not change the results qualitatively and results in a spillover effect of 11-14 (7.5-12) percent. The spillover effect is positively correlated with the public wage premium within worker type, with occupations which are abundant in the public sector, with the availability of public sector jobs and being hired after the wage increase.

Fiscal Composition and Long-Term Growth

We assess the fiscal composition-growth nexus, using a large country panel, accounting for the usually encountered econometric pitfalls. Our results show that revenues have no significant impact on growth whereas expenditures have negative effects. The same is true for the OECD with the addition that government revenue has a negative impact on growth. From our results, taxes on income are not growth enhancing, as well as public wages, interest payments, subsidies and government consumption. Spending on education and health boosts growth; and there is weak evidence supporting causality running from expenditures and revenues to output.

The Effect of Cutback Strategies on Public Sector Employment and Wages in Slovenia

The Effect of Cutback Strategies on Public Sector Employment and Wages in Slovenia

PAY SECRECY AND EFFORT PROVISION

Pay secrecy is often justified on the ground of concerns about the detrimental consequences of intra‐firm pay comparisons for work morale and performance. Surprisingly, however, there is only limited empirical evidence that the availability of pay comparison information is detrimental for effort provision. In this paper, I study pay comparison effects in a gift‐exchange game laboratory experiment where an employer is matched with two symmetric employees. I compare effort choices made by employees in a “pay secrecy” treatment and in two “public wages” treatments where employees are informed of the wage paid to the co‐worker. In one “public wages” treatment the employer can choose both wages she pays to the employees, while in the other treatment the wage paid to one employee is regulated exogenously. I show that pay disclosure can be detrimental for effort provision if employees are treated unequally. (JEL A13, C92, J31)

The macroeconomic impact of monetization on the Nigerian economy

An important question is asked about the relationship between output and monetization of public servants wages and salaries structure: are variations in public servants wage and salaries plus monetization of fringe benefits transmitted to increase output, and do these variations in output constitute an important component of variations in monetization? Total recurrent expenditure is regressed on wages and salaries and fringe benefits of public servants, monetization and real domestic absorption using General Moment Method (GMM). Again, the cost of governance equation which induces monetization is regressed on recurrent expenditure, labor and capital variables merged into one, capital stock and new salary package. The third equation expresses output as a function of cost of governance taking into account the possible effects of inflation, interest rate and new salary packed which include monetization booty. The empirical analysis is based on data from the Central Bank of Nigeria statistical Bulletin for the period of 1985 to 2010. The results show that wages and salaries, fringe benefits of public servants and monetization contribute significantly to recurrent expenditure while the real domestic direct resources away from recurrent expenditure towards capital expenditure. Again, variations in recurrent expenditures are transmitted; they constitute the dominant component in the variations of cost of governance. In the output estimates, new salary package which has monetization as an important component varies in the right direction with output, and the implication is that new salary package through monetization increases productivity and output. Key words: Monetization, recurrent expenditure, capital expenditure, output, salary and fringe benefits.

The Effects of Fiscal Policy in Italy: Estimates with a Svar Model

This paper studies the effects of fiscal policy on private GDP, inflation and interest rates in Italy using a structural Vector Autoregression. For this purpose a database of quarterly cash data for selected fiscal variables for the period 1982:1-2003:4 is constructed, largely on the basis of the information contained in the Italian Treasury Quarterly Reports. The main results of the study can be summarized as follows. A shock to government purchases of goods and services has a sizeable and robust effect on economic activity: an exogenous one per cent (in terms of private GDP) shock raises private real GDP by 0.6 per cent after 3 quarters. The response of GDP goes to zero after two years, reflecting with a lag the low persistence of the shock. The effects on private consumption and investment are positive; the reaction of inflation is also positive but limited and short-lived. In contrast, public wages, which in many studies are lumped together with purchases, have no significant effect on GDP in the short-run; a negative and significant effect emerges after two years. The reactions of inflation and interest rates are positive and larger than in the case of a shock to purchases. Finally, shocks to net revenue have negligible effects on all the macroeconomic variables.