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Generalized switching regression analysis of private and public sector wage structures in Germany

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Author Info

  • Dustmann, C.
  • Soest, A.H.O. van

    (Tilburg University, Center for Economic Research)

Abstract

This paper analyzes wage structures in the public and the private sector for Germany. The data contains a rich set of variables on parents' characteristics that we use as instruments. We extend the empirical literature in this field by endogenizing education level and hours worked, and by using life cycle wage differentials in the structural selection equation. We show that these extentions significantly improve the standard model. Moreover, they lead to considerably different parameter estimates. We compute conditional and unconditional wage predictions for the various specifications using model simulations. We find that, on average, potential wages in the private sector exceed those in the public sector. Those actually working in the public sector, would do somewhat better in the private sector, while those working in the private sector would earn much less in the public sector.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-44.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:199544

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Web page: http://center.uvt.nl

Related research

Keywords: Regression Analysis; Public Choice; Wage Differentials; labour economics;

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References

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  1. De Fraja, Giovanni, 1993. "Unions and Wages in Public and Private Firms: A Game-Theoretic Analysis," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 457-69, July.
  2. Jocobson, T. & Ohlsson, H., 1991. "Cointegrating Sectoral Wages in Sweden - a Maximum Likelihood Approach," Papers 1991t, Uppsala - Working Paper Series.
  3. Zweimuller, J & Winter-Ebmer, R, 1994. "Gender Wage Differentials in Private and Public Sector Jobs," Journal of Population Economics, Springer, vol. 7(3), pages 271-85, July.
  4. Morley Gunderson, 1979. "Earnings Differentials between the Public and Private Sectors," Canadian Journal of Economics, Canadian Economics Association, vol. 12(2), pages 228-42, May.
  5. Pederson, P. J. & Schmidt-Sorensen, J. B. & Smith, N. & Westergard-Nielsen, N., 1990. "Wage differentials between the public and private sectors," Journal of Public Economics, Elsevier, vol. 41(1), pages 125-145, February.
  6. 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.
  7. Jacobsen, Joyce P., 1992. "Spillover effects from government employment," Economics Letters, Elsevier, vol. 39(1), pages 101-104, May.
  8. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  9. Holmlund, Bertil, 1993. "Wage setting in private and public sectors in a model with endogenous government behavior," European Journal of Political Economy, Elsevier, vol. 9(2), pages 149-162, May.
  10. Theeuwes, J. & Koopmans, C. C. & Van Opstal, R. & Van Reijn, H., 1985. "Estimation of optimal human capital accumulation parameters for The Netherlands," European Economic Review, Elsevier, vol. 29(2), pages 233-257.
  11. Terrell, Katherine, 1993. "Public-private wage differentials in Haiti Do public servants earn a rent?," Journal of Development Economics, Elsevier, vol. 42(2), pages 293-314, December.
  12. Gindling, T H, 1991. "Labor Market Segmentation and the Determination of Wages in the Public, Private-Formal, and Informal Sectors in San Jose, Costa Rica," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 584-605, April.
  13. Hartog, Joop & Oosterbeek, Hessel, 1993. "Public and private sector wages in the Netherlands," European Economic Review, Elsevier, vol. 37(1), pages 97-114, January.
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Citations

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Cited by:
  1. Mengistae, Taye, 1999. "Wage rates and job queues - does the public sector overpay in Ethiopia?," Policy Research Working Paper Series 2105, The World Bank.
  2. Christofides, Louis N. & Pashardes, Panos, 2002. "Self/paid-employment, public/private sector selection, and wage differentials," Labour Economics, Elsevier, vol. 9(6), pages 737-762, December.
  3. Asplund, Rita, 2002. "Private vs. Public Sector Returns to Human Capital in Finland," Discussion Papers 607, The Research Institute of the Finnish Economy.

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