Advanced Search
MyIDEAS: Login

The Public Pay Gap in Britain: Small Differences That (Don’t?) Matter

Contents:

Author Info

  • Postel-Vinay, Fabien
  • Turon, Hélène

Abstract

The existing literature on inequality between private and public sectors focuses on cross-section differences in earnings levels. A more general way of looking at inequality between sectors is to recognize that forward-looking agents will care about income and job mobility too. We show that these are substantially different between the two sectors. Using data from the BHPS, we estimate a model of income and employment dynamics over seven years. We allow for unobserved heterogeneity in the propensity to be unemployed or employed in either job sector and in terms of the income process. We then combine the results into lifetime values of jobs in either sector and carry out a cross-section comparative analysis of these values. We have four main findings. First focusing on cross-sector differences in terms of the income process only, we detect a positive average public premium both in income flows and in the present discounted sum of future income flows. Second, we argue that income inequality is lower but more persistent in the public sector, as most of the observed relative cross-sectional income compression in the public sector is due to a lower variance of the transitory component of income. Third, when taking job mobility into account, the lifetime public premium is essentially zero for workers that we categorize as "high-employability" individuals, suggesting that the UK labor market is sufficiently mobile to ensure a rapid allocation of workers into their "natural" sector. Fourth, we find some evidence of job queuing for public sector jobs among "low-employability" workers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP5296.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5296.

as in new window
Length:
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cpr:ceprdp:5296

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: income dynamics; job mobility; public-private inequality; selection effects;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Moshe Buchinsky & Jennifer Hunt, 1999. "Wage Mobility In The United States," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 351-368, August.
  2. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  3. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  4. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
  5. Lawrence Katz & Alan Krueger, 1991. "Changes in the Structure of Wages in the Public and Private Sectors," Working Papers 662, Princeton University, Department of Economics, Industrial Relations Section..
  6. Clark, Andrew E & Postel-Vinay, Fabien, 2005. "Job Security and Job Protection," CEPR Discussion Papers 4927, C.E.P.R. Discussion Papers.
  7. Disney, Richard F & Gosling, Amanda, 2003. "A New Method for Estimating Public Sector Pay Premia: Evidence from Britain in the 1990's," CEPR Discussion Papers 3787, C.E.P.R. Discussion Papers.
  8. repec:fth:prinin:282 is not listed on IDEAS
  9. Cappellari, Lorenzo, 2002. "Earnings dynamics and uncertainty in Italy: how do they differ between the private and public sectors?," Labour Economics, Elsevier, vol. 9(4), pages 477-496, September.
  10. Arcidiacono, Peter & Jones, John B., 2000. "Finite Mixture Distribution, Sequential Likelihood, and the EM Algorithm," Working Papers 00-16, Duke University, Department of Economics.
  11. James M. Poterba & Kim S. Rueben, 1994. "The Distribution of Public Sector Wage Premia: New Evidence Using Quantile Regression Methods," NBER Working Papers 4734, National Bureau of Economic Research, Inc.
  12. Stephen Nickell & Glenda Quintini, 2002. "The Consequences of The Decline in Public Sector Pay in Britain: A Little Bit of Evidence," Economic Journal, Royal Economic Society, vol. 112(477), pages F107-F118, February.
  13. Tullio Jappelli & Luigi Pistaferri, 2006. "Intertemporal Choice and Consumption Mobility," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 75-115, 03.
  14. Stewart, Mark, 2006. "The Inter-related Dynamics of Unemployment and Low-Wage Employment," The Warwick Economics Research Paper Series (TWERPS) 741, University of Warwick, Department of Economics.
  15. Audra J. Bowlus & Jean-Marc Robin, 2004. "Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 709-742, 07.
  16. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
  17. van Ophem, Hans, 1993. "A Modified Switching Regression Model for Earnings Differentials between the Public and Private Sectors in the Netherlands," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 215-24, May.
  18. Gourinchas, P.O. & Parker, J.A., 1997. "Consumption Over the Life Cycle," Working papers 9722, Wisconsin Madison - Social Systems.
  19. Mueller, Richard E., 1998. "Public-private sector wage differentials in Canada: evidence from quantile regressions," Economics Letters, Elsevier, vol. 60(2), pages 229-235, August.
  20. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
  21. Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
  22. Shorrocks, A F, 1976. "Income Mobility and the Markov Assumption," Economic Journal, Royal Economic Society, vol. 86(343), pages 566-78, September.
  23. Flinn, Christopher J, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 611-45, July.
  24. Moulton, Brent R, 1990. "A Reexamination of the Federal-Private Wage Differential in the United States," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 270-93, April.
  25. Dustmann, Christian & van Soest, Arthur, 1998. "Public and private sector wages of male workers in Germany," European Economic Review, Elsevier, vol. 42(8), pages 1417-1441, September.
  26. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers W04/28, Institute for Fiscal Studies.
  27. Richard Disney & Amanda Gosling, 1998. "Does it pay to work in the public sector?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 347-374, November.
  28. Zvi Eckstein & Kenneth I. Wolpin, 1999. "Why Youths Drop Out of High School: The Impact of Preferences, Opportunities, and Abilities," Econometrica, Econometric Society, vol. 67(6), pages 1295-1340, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Chatterji, Monojit & Mumford, Karen A. & Smith, Peter N., 2007. "The Public-Private Sector Gender Wage Differential: Evidence from Matched Employee-Workplace Data," IZA Discussion Papers 3158, Institute for the Study of Labor (IZA).
  2. António Afonso & Pedro Gomes, 2008. "Interactions between Private and Public Sector Wages," Working Papers 2008/55, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  3. Aedin Doris & Donal O’Neill & Olive Sweetman, 2008. "Does Growth Affect the Nature of Inequality? Ireland 1994-2001," Economics, Finance and Accounting Department Working Paper Series n1930708.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  4. Pedro S. Martins, 2010. "Cronyism," Working Papers 37, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  5. Gregg, Paul & Grout, Paul A. & Ratcliffe, Anita & Smith, Sarah & Windmeijer, Frank, 2011. "How important is pro-social behaviour in the delivery of public services?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 758-766, August.
  6. Monojit Chatterji & Karen Mumford & Peter N Smith, 2007. "The Public-Private Sector Wage Differential: Gender, Workplaces and Family Friendliness," Dundee Discussion Papers in Economics 202, Economic Studies, University of Dundee.
  7. Richard Disney & Amanda Gosling, 2008. "Changing public sector wage differentials in the UK," IFS Working Papers W08/02, Institute for Fiscal Studies.
  8. Bargain, Olivier & Melly, Blaise, 2008. "Public Sector Pay Gap in France: New Evidence Using Panel Data," IZA Discussion Papers 3427, Institute for the Study of Labor (IZA).
  9. Domenico Depalo & Raffaella Giordano, 2011. "The public-private pay gap: a robust quantile approach," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 70(1), pages 25-64, January.
  10. Azmat, Ghazala & Manning, Alan & Van Reenen, John, 2007. "Privatization, Entry Regulation and the Decline of Labour's Share of GDP: A Cross-Country Analysis of the Network Industries," CEPR Discussion Papers 6348, C.E.P.R. Discussion Papers.
  11. Siebert, W. Stanley & Peng, Fei & Maimaiti, Yasheng, 2011. "HRM Practices and Performance of Family-Run Workplaces: Evidence from the 2004 WERS," IZA Discussion Papers 5899, Institute for the Study of Labor (IZA).
  12. Gomes, Pedro Maia, 2010. "Fiscal Policy and the Labour Market: The Effects of Public Sector Employment and Wages," IZA Discussion Papers 5321, Institute for the Study of Labor (IZA).
  13. Pedro Gomes, 2009. "Labour market effects of public sector employment and wages," 2009 Meeting Papers 313, Society for Economic Dynamics.
  14. Gian Luigi Albano & Clare Leaver, 2005. "Transparency, Recuitment and Retention in the Public Sector," The Centre for Market and Public Organisation 05/132, Department of Economics, University of Bristol, UK.
  15. Jean-Marc Robin, 2010. "On the dynamics of unemployment and wage distributions," CeMMAP working papers CWP04/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5296

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.