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An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status

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Joseph Gyourko
Joseph Tracy

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Abstract

Studies of public/private sector wage differentials typically assume that the govenment and union status of a worker are exogenous variables. Recently, some studies have relaxed this assumption slightly by allowing the union status to be endogenous. In this paper, we consider a more general selection model in which a worker selects among four labor markets: private/nonunion, private/union, public/nonunion and public/union. A multinomial logit model is estimated to capture this selection decision. Consistent wage equation estimates are then derived using a generalization of the now familiar two-step estimation procedure. Some evidence is found for selection bias in the private/nonunion and the public/union sectors.The pattern of these selection effects produces larger union wage premiumsin the public as compared to the private sector. While this is in contrast to the standard findings, the standard errors on the public sector union wage differentials are quite high. In addition, the data indicates that the public/private sector wage differential is largest for federal workers despite the "comparability" process determining their wages.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1920.

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Date of creation: May 1986
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Handle: RePEc:nbr:nberwo:1920

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  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. [Downloadable!]
  2. Asma Hyder & Barry Reilly, 2005. "The Public Sector Pay Gap in Pakistan: A Quantile Regression Analysis," PRUS Working Papers 33, Poverty Research Unit at Sussex, University of Sussex. [Downloadable!]
  3. Asma Hyder & Barry Reilly, 2005. "The Public and Private Sector Pay Gap in Pakistan: A Quantile Regression Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(3), pages 271-306. [Downloadable!]
  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. [Downloadable!] (restricted)
  5. J. David Brown & John Earle & Almos Telegdy, 2005. "Does Privatization Hurt Workers? Lessons from Comprehensive Manufacturing Firm Panel Data in Hungary, Romania, Russia, and Ukraine," CERT Discussion Papers 0509, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
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  6. Aysit Tansel, 1999. "Public-Private Employment Choice, Wage Differentials and Gender in Turkey," Working Papers 797, Economic Growth Center, Yale University. [Downloadable!]
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  7. Robert Kaestner, 1990. "The Effect of Illicit Drug Use on the Wages of Young Adults," NBER Working Papers 3535, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Heinrich, Carolyn J. & Mueser, Peter R. & Troske, Kenneth R., 2002. "Welfare to Temporary Work: Implications for Labor Market Outcomes," IZA Discussion Papers 584, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Juan Prieto Rodríguez & María José Suárez Fernández, 2006. "Like father like son? Intergenerational links within occupations and public employment," Hacienda Pública Española, IEF, vol. 178(3), pages 81-111, September. [Downloadable!]
  10. 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. [Downloadable!]
  11. Kathy A. Paulson Gjerde, 2002. "The existence of gender-specific promotion standards in the U.S," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(8), pages 447-459. [Downloadable!]
  12. Rebecca M. Blank, 1993. "Public Sector Growth and Labor Market Flexibility: The United States vs. The United Kingdom," NBER Working Papers 4339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Pham, T. Hung & Reilly, Barry, 2007. "Ethnic Wage Inequality in Vietnam: Empirical Evidence from 2002," MPRA Paper 6477, University Library of Munich, Germany. [Downloadable!]
  14. Dominic J. Brewer & Eric Eide & Ronald G. Ehrenberg, 1996. "Does It Pay To Attend An Elite Private College? Cross Cohort Evidence on the Effects of College Quality on Earnings," NBER Working Papers 5613, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Chunbing, Xing, 2006. "Human Capital and Wage Determination in Different Ownerships, 1989-97," Working Papers RP2006/121, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  16. Rita Asplund, 2002. "Private vs. Public Sector Returns to Human Capital in Finland," Discussion Papers 607, The Research Institute of the Finnish Economy. [Downloadable!]
  17. Heitmueller, Axel, 2004. "Public-Private Sector Wage Differentials in Scotland: An Endogenous Switching Model," IZA Discussion Papers 992, Institute for the Study of Labor (IZA). [Downloadable!]
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