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Wage rates and job queues: does the public sector overpay in Ethiopia?

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  • Taye Mengistae

Abstract

The public sector's share in wage employment is higher in Africa - including Ethiopia's urban labor market - than in developed economies. Fuller unionization, greater job security, and more generous non-wage benefits in the public sector lead one to assume that workers might queue up for public sector jobs.Do higher wage rates in Ethiopia's public sector create such a queue? The author extends Lee's two-stage structural probit analysis to test (with data from a recent urban household survey) and measure the existence and scope of such a queue for public sector jobs in Ethiopia. The results reject the absence of job rationing in favor of an implicit queue of most private sector workers for public sector jobs. The queue exists mainly because of popular expectations of a wage premium (between 11 and 40 percent) in the public sector. Controlling for individual differences in expectations of the sectoral wage differences, the author finds that skill does not significantly affect a worker's sector preferences, but some social characteristics do. A worker with a traditional farming background is more likely to be in the queue than is a second-generation urban dweller. This is interesting, considering that the influx of rural migrants to urban centers in the last few decades has been partly fueled by hopes of public sector employment. On average, women are more likely than men, and workers in provincial towns more likely than workers in the capital, to prefer public sector jobs. Level of schooling and job experience do not seem to affect preferences for the public over the private sector. The probability of a worker's being selected from the public sector queue decreases with the wage rate the worker potentially commands as a public sector employee. Workers on the lower end of the pay scale are more likely to be selected. Among workers who join the queue for public sector jobs, men are more likely to be hired than women and skilled workers are more likely to be hired than l

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1998-20.

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Date of creation: 1998
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Handle: RePEc:csa:wpaper:1998-20

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  1. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, vol. 48(2), pages 491-503, March.
  2. Upadhyay, Mukti P., 1997. "Can public sector employment spur human capital acquisition?," Economics Letters, Elsevier, vol. 56(1), pages 121-127, September.
  3. 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.
  4. Robinson, Chris & Tomes, Nigel, 1984. "Union Wage Differentials in the Public and Private Sectors: A Simultaneous Equations Specification," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 106-27, January.
  5. Hartog, Joop & Oosterbeek, Hessel, 1993. "Public and private sector wages in the Netherlands," European Economic Review, Elsevier, vol. 37(1), pages 97-114, January.
  6. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
  7. Björklund, Anders, 1983. "Estimation of Wage Gains and Welfare Gains from Self-Selection Models," Working Paper Series 105, Research Institute of Industrial Economics.
  8. Dustmann, C. & Soest, A.H.O. van, 1995. "Generalized switching regression analysis of private and public sector wage structures in Germany," Discussion Paper 1995-44, Tilburg University, Center for Economic Research.
  9. Heywood, John S & Mohanty, Madhu S, 1994. "The Role of Employer and Workplace Size in the U.S. Federal Sector Job Queue," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 171-88, May.
  10. van der Gaag, Jacques & Vijverberg, Wim, 1988. "A Switching Regression Model for Wage Determinants in the Public and Private Sectors of a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 244-52, May.
  11. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
  12. Joseph Gyourko & Joseph Tracy, 1986. "An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," NBER Working Papers 1920, National Bureau of Economic Research, Inc.
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Cited by:
  1. Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Economics Series Working Papers WPS/2004-01, University of Oxford, Department of Economics.
  2. Asma Hyder, 2007. "Wage Differentials, Rate of Return to Education, and Occupational Wage Share in the Labour Market of Pakistan," Labor Economics Working Papers 22197, East Asian Bureau of Economic Research.
  3. Pieter Serneels, 2002. "Explaining Non-Negative Duration Dependence Among the Unemployed," CSAE Working Paper Series 2002-13, Centre for the Study of African Economies, University of Oxford.
  4. Bales, Sarah & Rama, Martin, 2001. "Are public sector workers underpaid? - Appropriate comparators in a developing country," Policy Research Working Paper Series 2747, The World Bank.
  5. Rama, Martin, 1999. "The Sri Lankan unemployment problem revisited," Policy Research Working Paper Series 2227, The World Bank.
  6. Asma Hyder, 2007. "Preference for Public Sector Jobs and Wait Unemployment: A Micro Data Analysis," PIDE-Working Papers 2007:20, Pakistan Institute of Development Economics.
  7. World Bank, 2005. "Education in Ethiopia : Strengthening the Foundation for Sustainable Progress," World Bank Publications, The World Bank, number 7434, October.

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