Public-Private Wage Gap In Latin America (1999-2007): A Matching Approach

Using matching methods, we estimate the public-private wage gap in seven Latin American countries—Argentina, Bolivia, Brazil, Chile, Costa Rica, Paraguay and Uruguay—for the years 1999 and 2007. These methods do not require any estimation of earnings equations and hence no validity-out-of-the-support assumptions; furthermore, this approach allows us to estimate not only the average wage gap but also its distribution. Our main findings indicate that the average public sector worker earns more than his/her private counterpart. This differential has increased over the 1999-2007 period. Our results also show that there are important differences along the wage distribution. In particular, we find that the public sector wage premium declines as it moves up the conditional wage distribution, becoming a public sector wage penalty for the higher percentiles. Over the 1999-2007 period, the public-private wage gap changes from positive to negative at higher percentiles of the distribution, but still the most qualified public sector workers do face a wage penalty. Therefore, the profitability of public sector employment seems to be at its greatest at the lower end of the wage distribution. JEL Classification: J31, D31. Key words: Public-private Wage Gap, Matching, Public Sector, Latin America.