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Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State

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  • Andrew Chamberlain

Abstract

Industry privatizations that result in exogenous job displacement of public employees can be exploited to estimate public sector wage rents. I report the findings of an original survey I administered to examine how wages of displaced government workers were affected by a 2012 privatization of liquor retailing in Washington State. Based on a panel difference-in-differences estimator I find that privatization reduced wages by $2.51 per hour or 17 percent compared to a counterfactual group of nearly identical non-displaced workers, with larger effects for women. I decompose wage losses into three rents identified in the literature: public sector rents, union premiums, and industry-specific human capital. Public sector wage premiums separately account for 85 to 90 percent of overall wage losses, while union premiums and industry-specific human capital account for just 10 to 15 percent. The results are consistent with a roughly 16 percent public sector wage premium. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Andrew Chamberlain, 2015. "Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State," Journal of Labor Research, Springer, vol. 36(4), pages 347-388, December.
    • Handle: RePEc:spr:jlabre:v:36:y:2015:i:4:p:347-388
    DOI: 10.1007/s12122-015-9212-1
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    References listed on IDEAS

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    1. Jan K. Brueckner & David Neumark, 2014. "Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 198-230, May.
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    5. Clemens, Jeffrey, 2013. "State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts," MPRA Paper 55921, University Library of Munich, Germany.
    6. Disney, Richard F & Gosling, Amanda, 2003. "A New Method for Estimating Public Sector Pay Premia: Evidence from Britain in the 1990's," CEPR Discussion Papers 3787, C.E.P.R. Discussion Papers.
    7. Sebastián Galiani and Federico Sturzenegger, "undated". "The Impact of Privatization on the Earnings of Restructured Workers," Business School Working Papers longterm, Universidad Torcuato Di Tella.
    8. Alan B. Krueger, 1988. "Are Public Sector Workers Paid More Than Their Alternative Wage? Evidence from Longitudinal Data and Job Queues," NBER Chapters, in: When Public Sector Workers Unionize, pages 217-242, National Bureau of Economic Research, Inc.
    9. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630, Elsevier.
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    Cited by:

    1. Chandan Kumar Mohanty & Smrutirekha Mohanty, 2019. "Public–Private Wage Gap in the Indian Mining and Quarrying Industry," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 13(2), pages 232-253, May.

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    More about this item

    Keywords

    Public-sector labor markets; Union rents; Displaced workers; Privatization; J45; J51; L33; J63; J68;
    All these keywords.

    JEL classification:

    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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