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The Lifetime Earnings Premium in the Public Sector: The View from Europe

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Author Info

  • Dickson, Matt

    ()
    (University of Bath)

  • Postel-Vinay, Fabien

    ()
    (University College London)

  • Turon, Hélène

    ()
    (University of Bristol)

Abstract

In a context of widespread concern about budget deficits, it is important to assess whether public sector pay is in line with the private sector. Our paper proposes an estimation of differences in lifetime values of employment between public and private sectors for five European countries. We use data from the European Community Household Panel over the period 1994-2001 for Germany, the Netherlands, France, Italy and Spain. We look at lifetime values instead of wage levels because, as we show in our results, differences in earnings mobility, earnings volatility and job loss risk across sectors occur in many instances and these will matter to forward-looking individuals. When aggregated into a measure of lifetime value of employment in either sector, these differences yield estimates of the lifetime premium in the public sector for these five countries. We also present differences in the institutional and labour market structures in these countries and find that countries for which we estimate a positive lifetime premium in the public sector, i.e. France and Spain, are also the countries where access to the public sector requires costly entry procedures. This paper is to the best of our knowledge the first to use this dynamic approach applied to Europe, which we are able to do with a common dataset, time-period and model.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8159.

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Length: 94 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8159

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

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References

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  1. Helene Turon & Fabien Postel-Vinay, 2005. "The Public Pay Gap in Britain: Small Differences that (Don't?) Matter," 2005 Meeting Papers, Society for Economic Dynamics 92, Society for Economic Dynamics.
  2. Audra J. Bowlus & Jean-Marc Robin, 2004. "Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 709-742.
  3. Lucifora C. & Meurs D., 2004. "The Public Sector Pay Gap in France, Great Britain and Italy," Working Papers ERMES, ERMES, University Paris 2 0403, ERMES, University Paris 2.
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  7. Dustmann, Christian & van Soest, Arthur, 1998. "Public and private sector wages of male workers in Germany," European Economic Review, Elsevier, Elsevier, vol. 42(8), pages 1417-1441, September.
  8. Moshe Buchinsky & Jennifer Hunt, 1996. "Wage Mobility in the United States," NBER Working Papers 5455, National Bureau of Economic Research, Inc.
  9. Christopher J. Flinn, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 611-645.
  10. Hartog, Joop & Oosterbeek, Hessel, 1993. "Public and private sector wages in the Netherlands," European Economic Review, Elsevier, Elsevier, vol. 37(1), pages 97-114, January.
  11. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 21-40, Spring.
  12. Stéphane Bonhomme & Jean-Marc Robin, 2008. "Assessing the equalizing force of mobility using short panels: France 1990-2000," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP02/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  13. Daniele Franco, 2002. "Italy: A Never-Ending Pension Reform," NBER Chapters, National Bureau of Economic Research, Inc, in: Social Security Pension Reform in Europe, pages 211-262 National Bureau of Economic Research, Inc.
  14. Paolo Ghinetti & Claudio Lucifora, 2008. "Public Sector Pay Gaps and Skill Levels: a Cross-Country Comparison," Working Papers, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont 118, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
  15. Lassibille, Gerard, 1998. "Wage Gaps Between the Public and Private Sectors in Spain," Economics of Education Review, Elsevier, Elsevier, vol. 17(1), pages 83-92, February.
  16. Giordano, Raffaela & Depalo, Domenico & Coutinho Pereira, Manuel & Eugène, Bruno & Papapetrou, Evangelia & Pérez, Javier J. & Reiss, Lukas & Roter, Mojca, 2011. "The public sector pay gap in a selection of Euro area countries," Working Paper Series, European Central Bank 1406, European Central Bank.
  17. 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).
  18. Cappellari, Lorenzo, 2002. "Earnings dynamics and uncertainty in Italy: how do they differ between the private and public sectors?," Labour Economics, Elsevier, Elsevier, vol. 9(4), pages 477-496, September.
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