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Wage rates and job queues - does the public sector overpay in Ethiopia?

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  • Mengistae, Taye

Abstract

The public sector's share in wage employment is higher in Africa - including Ethiopia's urban labor market - than in developed economies. Fuller unionization, greater job security, and more generous non-wage benefits in the public sector lead one to assume that workers might queue up for public sector jobs.Do higher wage rates in Ethiopia's public sector create such a queue? The author extends Lee's two-stage structural probit analysis to test (with data from a recent urban household survey) and measure the existence and scope of such a queue for public sector jobs in Ethiopia. The results reject the absence of job rationing in favor of an implicit queue of most private sector workers for public sector jobs. The queue exists mainly because of popular expectations of a wage premium (between 11 and 40 percent) in the public sector. Controlling for individual differences in expectations of the sectoral wage differences, the author finds that skill does not significantly affect a worker's sector preferences, but some social characteristics do. A worker with a traditional farming background is more likely to be in the queue than is a second-generation urban dweller. This is interesting, considering that the influx of rural migrants to urban centers in the last few decades has been partly fueled by hopes of public sector employment. On average, women are more likely than men, and workers in provincial towns more likely than workers in the capital, to prefer public sector jobs. Level of schooling and job experience do not seem to affect preferences for the public over the private sector. The probability of a worker's being selected from the public sector queue decreases with the wage rate the worker potentially commands as a public sector employee. Workers on the lower end of the pay scale are more likely to be selected. Among workers who join the queue for public sector jobs, men are more likely to be hired than women and skilled workers are more likely to be hired than less-skilled workers.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2105.

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Date of creation: 30 Apr 1999
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Handle: RePEc:wbk:wbrwps:2105

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Keywords: Public Health Promotion; Public Sector Economics&Finance; Health Monitoring&Evaluation; Statistical&Mathematical Sciences; Economic Systems; Health Monitoring&Evaluation; Economic Stabilization; Inequality; Public Sector Economics&Finance; Macroeconomic Management;

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References

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  1. 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, Elsevier, vol. 41(1), pages 125-145, February.
  2. Gill, Andrew M, 1988. "Choice of Employment Status and the Wages of Employees and the Self-employed: Some Further Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(3), pages 229-34, July-Sept.
  3. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, Elsevier, vol. 12(2), pages 209-217, February.
  4. 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.
  5. Robinson, Chris & Tomes, Nigel, 1984. "Union Wage Differentials in the Public and Private Sectors: A Simultaneous Equations Specification," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(1), pages 106-27, January.
  6. Gyourko, Joseph & Tracy, Joseph, 1988. "An Analysis of Public- and Private-Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(2), pages 229-53, April.
  7. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, Econometric Society, vol. 49(3), pages 781-93, May.
  8. John M. Abowd & Henry S. Farber, 1982. "Job queues and the union status of workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(3), pages 354-367, April.
  9. Dustmann, C. & Soest, A.H.O. van, 1995. "Generalized switching regression analysis of private and public sector wage structures in Germany," Discussion Paper, Tilburg University, Center for Economic Research 1995-44, Tilburg University, Center for Economic Research.
  10. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
  11. 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.
  12. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 491-503, March.
  13. Björklund, Anders, 1983. "Estimation of Wage Gains and Welfare Gains from Self-Selection Models," Working Paper Series, Research Institute of Industrial Economics 105, Research Institute of Industrial Economics.
  14. Upadhyay, Mukti P., 1997. "Can public sector employment spur human capital acquisition?," Economics Letters, Elsevier, Elsevier, vol. 56(1), pages 121-127, September.
  15. Heywood, John S & Mohanty, Madhu S, 1994. "The Role of Employer and Workplace Size in the U.S. Federal Sector Job Queue," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 171-88, May.
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Citations

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Cited by:
  1. Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Economics Series Working Papers WPS/2004-01, University of Oxford, Department of Economics.
  2. Pieter Serneels, 2002. "Explaining Non-Negative Duration Dependence Among the Unemployed," CSAE Working Paper Series 2002-13, Centre for the Study of African Economies, University of Oxford.
  3. Rama, Martin, 1999. "The Sri Lankan unemployment problem revisited," Policy Research Working Paper Series 2227, The World Bank.
  4. World Bank, 2005. "Education in Ethiopia : Strengthening the Foundation for Sustainable Progress," World Bank Publications, The World Bank, number 7434, August.
  5. Asma Hyder, 2007. "Preference for Public Sector Jobs and Wait Unemployment : A Micro Data Analysis," Labor Economics Working Papers 22196, East Asian Bureau of Economic Research.
  6. Asma Hyder, 2007. "Wage Differentials, Rate of Return to Education, and Occupational Wage Share in the Labour Market of Pakistan," Labor Economics Working Papers 22197, East Asian Bureau of Economic Research.
  7. Bales, Sarah & Rama, Martin, 2001. "Are public sector workers underpaid? - Appropriate comparators in a developing country," Policy Research Working Paper Series 2747, The World Bank.

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