The Public Pay Gap in Britain: Small Differences that (Don't?) Matter
AbstractThe existing literature on inequality between private and public sectors focuses on cross-section differences in earnings levels. A more general way of looking at inequality between sectors is to recognize that forward-looking agents will care about income and job mobility too. We show that these are substantially different between the two sectors. Using data from the BHPS, we estimate a model of income and employment dynamics over seven years. We allow for unobserved heterogeneity in the propensity to be unemployed or employed in either job sector and in terms of the income process. We then combine the results into lifetime values of jobs in either sector and carry out a cross-section comparative analysis of these values. We have four main findings. First focusing on cross-sector differences in terms of the income process only, we detect a positive average public premium both in income flows and in the present discounted sum of future income flows. Second, we argue that income inequality is lower but more persistent in the public sector, as most of the observed relative cross-sectional income compression in the public sector is due to a lower variance of the transitory component of income. Third, when taking job mobility into account, the lifetime public premium is essentially zero for workers that we categorize as "high-employability" individuals, suggesting that the UK labor market is sufficiently mobile to ensure a rapid allocation of workers into their "natural" sector. Fourth, we find some evidence of job queuing for public sector jobs among "low-employability" workers.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 92.
Date of creation: 2005
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Income Dynamics; Job Mobility; Public-Private Inequality; Selection Effects;
Other versions of this item:
- Fabien Postel-Vinay & Hélène Turon, 2007. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," Economic Journal, Royal Economic Society, vol. 117(523), pages 1460-1503, October.
- Fabien Postel-Vinay & Hélène Turon, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," PSE Working Papers halshs-00590765, HAL.
- Fabien Postel-Vinay & Hélène Turon, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," The Centre for Market and Public Organisation 05/121, Department of Economics, University of Bristol, UK.
- Postel-Vinay, Fabien & Turon, Hélène, 2005. "The Public Pay Gap in Britain: Small Differences That (Don't?) Matter," IZA Discussion Papers 1637, Institute for the Study of Labor (IZA).
- Postel-Vinay, Fabien & Turon, Hélène, 2005. "The Public Pay Gap in Britain: Small Differences That (Don’t?) Matter," CEPR Discussion Papers 5296, C.E.P.R. Discussion Papers.
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
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