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You Get What You Pay For: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka

Author

Listed:
  • Ricardo Hausmann

    (Center for International Development at Harvard University)

  • Ljubica Nedelkoska

    (Center for International Development at Harvard University)

  • Sehar Noor

Abstract

We study the factors behind the public sector premium in Albania and Sri Lanka, the group heterogeneity in the premium, the sources of public sector wage compression, and the impact of this compression on the way individuals self-select between the public and the private sector. Similar to other countries, the public sectors in Albania and Sri Lanka pay higher wages than the private sector, for all but the most valued employees. While half of the premium of Sri Lanka and two-thirds of it in Albania are explained by differences in the occupation-education-experience mix between the sectors, and the level of private sector informality, the unexplained part of the premium is significant enough to affect the preferences of working in the public sector for different groups. We show that the compressed distributions of public sector wages and benefits create incentives for positive sorting into the public sector among most employees, and negative sorting among the most productive ones.

Suggested Citation

  • Ricardo Hausmann & Ljubica Nedelkoska & Sehar Noor, 2020. "You Get What You Pay For: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka," CID Working Papers 376, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:376
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    File URL: https://growthlab.cid.harvard.edu/files/growthlab/files/2020-02-cid-wp-376-public-sector-premium.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jørn Rattsø & Hildegunn E Stokke, 2022. "Public sector wage compression and wage inequality: Gender and geographic heterogeneity," Working Paper Series 19522, Department of Economics, Norwegian University of Science and Technology.

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    More about this item

    Keywords

    public sector premium; self-selection; Albania; Sri Lanka; wage compression;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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