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Wages in the Federal and Private Sectors

In: Public Sector Payrolls

  • Steven F. Venti

This study addresses the legal principle of "comparability" that ties federal sector wages to wages in the private sector. We first examine comparability by determining if workers with similar observed and unobserved characteristics receive the same wages in each sector. Estimates based on data from the 1982 CPS indicate males may have a slight wage advantage in the federal sector. Female workers earn substantially more in the federal sector than inthe private sector. We then develop a choice-theoretic approach to the issue of comparability by applying a simple supply argument: a cost-minimizing federal employer would pay wages no higher than necessary to attract employees and eliminate queues for federal jobs. If the market pays equalizing differences for unique attributes of each sector, then this approach is not consistent with wage equality between the sectors. A model jointly determining sectoral attachment and wage offers is estimated by maximum likelihood. Results suggest the elimination of queues will require substantial wage reductions for both male and female federal employees.

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This chapter was published in:
  • David A. Wise, 1987. "Public Sector Payrolls," NBER Books, National Bureau of Economic Research, Inc, number wise87-1, August.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7153.
    Handle: RePEc:nbr:nberch:7153
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    2. Richard B. Freeman, 1985. "How do Public Sector Wages and Employment Respond to Economic Conditions," NBER Working Papers 1653, National Bureau of Economic Research, Inc.
    3. Sherwin Rosen, 1996. "The Equilibrium Approach to Labor Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 189-204.
    4. 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.
    5. Timothy Smeeding, 1983. "The Size Distribution of Wage and Nonwage Compensation: Employer Cost versus Employee Value," NBER Chapters, in: The Measurement of Labor Cost, pages 237-286 National Bureau of Economic Research, Inc.
    6. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
    7. Duncan, Greg J. & Holmlund, Bertil, 1983. "Was Adam Smith Right, After All? Another Test of the Theory of Compensating Wage Differentials," Working Paper Series 93, Research Institute of Industrial Economics.
    8. Robert S. Smith & Ronald G. Ehrenberg, 1981. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Working Papers 0827, National Bureau of Economic Research, Inc.
    9. Don Bellante & Albert N. Link, 1981. "Are public sector workers more risk averse than private sector workers?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(3), pages 408-412, April.
    10. Joseph F. Quinn, 1979. "Wage Differentials among Older Workers in the Public and Private Sectors," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 41-62.
    11. Ehrenberg, Ronald G. & Schwarz, Joshua L., 1987. "Public-sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 22, pages 1219-1260 Elsevier.
    12. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
    13. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
    14. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
    15. Robert S. Smith, 1979. "Compensating wage differentials and public policy: A review," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(3), pages 339-362, April.
    16. Sharon P. Smith, 1976. "Pay differential between federal government and private sector workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 29(2), pages 179-197, January.
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