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Wages in the Federal and Private Sectors

In: Public Sector Payrolls

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  • Steven F. Venti

Abstract

This study addresses the legal principle of "comparability" that ties federal sector wages to wages in the private sector. We first examine comparability by determining if workers with similar observed and unobserved characteristics receive the same wages in each sector. Estimates based on data from the 1982 CPS indicate males may have a slight wage advantage in the federal sector. Female workers earn substantially more in the federal sector than inthe private sector. We then develop a choice-theoretic approach to the issue of comparability by applying a simple supply argument: a cost-minimizing federal employer would pay wages no higher than necessary to attract employees and eliminate queues for federal jobs. If the market pays equalizing differences for unique attributes of each sector, then this approach is not consistent with wage equality between the sectors. A model jointly determining sectoral attachment and wage offers is estimated by maximum likelihood. Results suggest the elimination of queues will require substantial wage reductions for both male and female federal employees.

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This chapter was published in:

  • David A. Wise, 1987. "Public Sector Payrolls," NBER Books, National Bureau of Economic Research, Inc, number wise87-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7153.

    Handle: RePEc:nbr:nberch:7153

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    References

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    1. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
    2. Robert S. Smith & Ronald G. Ehrenberg, 1983. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Chapters, in: The Measurement of Labor Cost, pages 347-370 National Bureau of Economic Research, Inc.
    3. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, Elsevier, vol. 12(2), pages 209-217, February.
    4. Duncan, Greg J & Holmlund, Bertil, 1983. "Was Adam Smith Right after All? Another Test of the Theory of Compensating Wage Differentials," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 1(4), pages 366-79, October.
    5. Joseph F. Quinn, 1979. "Wage Differentials among Older Workers in the Public and Private Sectors," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 41-62.
    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    7. Richard B. Freeman, 1987. "How Do Public Sector Wages and Employment Respond to Economic Conditions?," NBER Chapters, in: Public Sector Payrolls, pages 183-216 National Bureau of Economic Research, Inc.
    8. Robert S. Smith, 1979. "Compensating wage differentials and public policy: A review," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(3), pages 339-362, April.
    9. Ronald G. Ehrenberg & Joshua L. Schwarz, 1983. "Public Sector Labor Markets," NBER Working Papers 1179, National Bureau of Economic Research, Inc.
    10. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(1), pages 113-34, February.
    11. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
    12. Timothy Smeeding, 1983. "The Size Distribution of Wage and Nonwage Compensation: Employer Cost versus Employee Value," NBER Chapters, in: The Measurement of Labor Cost, pages 237-286 National Bureau of Economic Research, Inc.
    13. Sherwin Rosen, 1996. "The Equilibrium Approach to Labor Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 189-204.
    14. Sharon P. Smith, 1976. "Pay differential between federal government and private sector workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 29(2), pages 179-197, January.
    15. John M. Abowd & Henry S. Farber, 1982. "Job queues and the union status of workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(3), pages 354-367, April.
    16. Don Bellante & Albert N. Link, 1981. "Are public sector workers more risk averse than private sector workers?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(3), pages 408-412, April.
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    Cited by:
    1. Alejandra Mizala & Pilar Romaguera & Sebastian Gallegos, 2010. "Public-Private Wage Gap In Latin America (1999-2007): A Matching Approach," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 268, Centro de Economía Aplicada, Universidad de Chile.
    2. Aslam, Monazza & Kingdon, Geeta, 2009. "Public-private sector segmentation in the Pakistani labour market," Journal of Asian Economics, Elsevier, Elsevier, vol. 20(1), pages 34-49, January.
    3. Rebecca M. Blank, 1993. "Public Sector Growth and Labor Market Flexibility: The United States vs. The United Kingdom," NBER Working Papers 4339, National Bureau of Economic Research, Inc.
    4. Alan B. Krueger, 1988. "Are Public Sector Workers Paid More Than Their Alternative Wage? Evidence From Longitudinal Data and Job Queues," NBER Working Papers 2500, National Bureau of Economic Research, Inc.
    5. Christofides, Louis N. & Pashardes, Panos, 2002. "Self/paid-employment, public/private sector selection, and wage differentials," Labour Economics, Elsevier, Elsevier, vol. 9(6), pages 737-762, December.
    6. Robert A. Margo & T. Aldrich Finegan, 1995. "Changes in the Distribution of Wages, 1940-1950: The Public vs. the Private Sector," NBER Working Papers 5389, National Bureau of Economic Research, Inc.
    7. Bahman Bahrami & John Bitzan & Jay Leitch, 2009. "Union Worker Wage Effect in the Public Sector," Journal of Labor Research, Springer, Springer, vol. 30(1), pages 35-51, March.
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