IDEAS home Printed from https://ideas.repec.org/p/bde/wpaper/1539.html
   My bibliography  Save this paper

Understanding the Public Sector Pay Gap

Author

Listed:
  • Maria M. Campos

    (Banco de Portugal)

  • Domenico Depalo

    (Banco d´Italia)

  • Evangelia Papapetrou

    (Bank of Greece)

  • Javier J. Pérez

    () (Banco de España)

  • Roberto Ramos

    () (Banco de España)

Abstract

We uncover the short- and long-run structural determinants of the existing cross-country heterogeneity in public-private pay differentials for a broad set of OECD countries. We explore micro data (EU-SILC, 2004-2012) and macro data (1970-2014). Three results stand out. First, when looking at pay gaps based on individual data, more than half of the cross-sectional variation of the sample can be accounted for by the degree of exposure to international competition, and by the size of the public sector labour force and its composition (i.e. the intensity in the provision of pure public goods), while labour market institutions play a very limited role. Second, we find that pay gaps have narrowed significantly during the recent financial crisis; nevertheless, this decrease can be explained by the widespread process of fiscal consolidation rather than by structural factors. Third, we find that in the log-run openness to international trade and improvements in the institutional quality of governments are associated with decreases in the public-private wage gap. Our findings can be rationalised by a body of research stressing non-competitive wage settlements in the public sector.

Suggested Citation

  • Maria M. Campos & Domenico Depalo & Evangelia Papapetrou & Javier J. Pérez & Roberto Ramos, 2015. "Understanding the Public Sector Pay Gap," Working Papers 1539, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1539
    as

    Download full text from publisher

    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/15/Fich/dt1539e.pdf
    File Function: First version, December 2015
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
    2. Gonzalo Fernández-de-Córdoba & Javier Pérez & José Torres, 2012. "Public and private sector wages interactions in a general equilibrium model," Public Choice, Springer, vol. 150(1), pages 309-326, January.
    3. Holm-Hadulla, Fédéric & Kamath, Kishore & Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2010. "Public wages in the euro area - towards securing stability and competitiveness," Occasional Paper Series 112, European Central Bank.
    4. Pérez, Javier J. & Rodríguez-Vives, Marta & Depalo, Domenico & Papapetrou, Evangelia & Aouriri, Marie & Campos, Maria M. & Celov, Dmitrij & Pesliakaitė, Jurga & Ramos, Roberto, 2016. "The fiscal and macroeconomic effects of government wages and employment reform," Occasional Paper Series 176, European Central Bank.
    5. Marcelo dos Santos & Tiago Cavalcanti, 2015. "(Mis)Allocation Effects of an Overpaid Public Sector," 2015 Meeting Papers 1094, Society for Economic Dynamics.
    6. Raffaela Giordano & Manuel Coutinho Pereira & Domenico Depalo & Bruno Eugène & Evangelia Papapetrou & Javier J. Pérez & Lukas Reiss & Mojca Roter, 2014. "The Public Sector Pay Gap in a Selection of Euro Area Countries in the Pre-crisis Period," Hacienda Pública Española, IEF, vol. 214(3), pages 11-34, September.
    7. Dickson, Matt & Postel-Vinay, Fabien & Turon, Hélène, 2014. "The lifetime earnings premium in the public sector: The view from Europe," Labour Economics, Elsevier, vol. 31(C), pages 141-161.
    8. Matschke, Xenia, 2003. "Are There Election Cycles in Wage Agreements? An Analysis of German Public Employees," Public Choice, Springer, vol. 114(1-2), pages 103-135, January.
    9. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
    10. Caponi, Vincenzo, 2017. "Public employment policies and regional unemployment differences," Regional Science and Urban Economics, Elsevier, vol. 63(C), pages 1-12.
    11. Pérez, Javier J. & Giordano, Raffaela & Depalo, Domenico & Coutinho Pereira, Manuel & Eugène, Bruno & Papapetrou, Evangelia & Reiss, Lukas & Roter, Mojca, 2011. "The public sector pay gap in a selection of Euro area countries," Working Paper Series 1406, European Central Bank.
    12. J. Lindquist & Roger Vilhelmsson, 2006. "Is the Swedish central government a wage leader?," Applied Economics, Taylor & Francis Journals, vol. 38(14), pages 1617-1625.
    13. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2015. "A Model of Market and Political Power Interactions for Southern Europe," CEPR Discussion Papers 10359, C.E.P.R. Discussion Papers.
    14. Andreas Peichl & Nico Pestel & Sebastian Siegloch, 2013. "The politicians’ wage gap: insights from German members of parliament," Public Choice, Springer, vol. 156(3), pages 653-676, September.
    15. Lorenzo Forni & Natalija Novta, 2016. "Public employment and compensation reform: the role of social dialogue and structural measures," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 960-979, October.
    16. Hospido, Laura & Moral-Benito, Enrique, 2016. "The public sector wage premium in Spain: Evidence from longitudinal administrative data," Labour Economics, Elsevier, vol. 42(C), pages 101-122.
    17. David Neumark, 1988. "Employers' Discriminatory Behavior and the Estimation of Wage Discrimination," Journal of Human Resources, University of Wisconsin Press, vol. 23(3), pages 279-295.
    18. Elder, Todd E. & Goddeeris, John H. & Haider, Steven J., 2010. "Unexplained gaps and Oaxaca-Blinder decompositions," Labour Economics, Elsevier, vol. 17(1), pages 284-290, January.
    19. Louis Christofides & Maria Michael, 2013. "Exploring the public-private sector wage gap in European countries," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-53, December.
    20. Nelson Marconi & Paulo Arvate & João Moura Neto & Paulo Palombo, 2009. "Vertical transfers and the appropriation of resources by the bureaucracy: the case of Brazilian state governments," Public Choice, Springer, vol. 141(1), pages 65-85, October.
    21. Domenico Depalo & Raffaela Giordano & Evangelia Papapetrou, 2015. "Public–private wage differentials in euro-area countries: evidence from quantile decomposition analysis," Empirical Economics, Springer, vol. 49(3), pages 985-1015, November.
    22. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    23. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    24. Holmlund, Bertil, 1993. "Wage setting in private and public sectors in a model with endogenous government behavior," European Journal of Political Economy, Elsevier, vol. 9(2), pages 149-162, May.
    25. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    26. Jelena Lausev, 2014. "WHAT HAS 20 YEARS OF PUBLIC–PRIVATE PAY GAP LITERATURE TOLD US? EASTERN EUROPEAN TRANSITIONING vs. DEVELOPED ECONOMIES," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 516-550, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tryphon Kollintzas & Dimitris Papageorgiou & Efthymios Tsionas & Vanghelis Vassilatos, 2018. "Market and political power interactions in Greece: an empirical investigation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-43, December.
    2. repec:eee:poleco:v:53:y:2018:i:c:p:59-83 is not listed on IDEAS
    3. Javier J. Pérez & Marie Aouriri & Maria M. Campos & Dmitrij Celov & Domenico Depalo & Evangelia Papapetrou & Jurga Pesliakaite & Roberto Ramos Magdaleno & Marta Rodríguez-Vives, 2016. "The fiscal and macroeconomic effects of government wages and employment reform," Occasional Papers 1607, Banco de España;Occasional Papers Homepage.
    4. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2018. "Market and political power interactions in Greece: A theory," European Journal of Political Economy, Elsevier, vol. 53(C), pages 59-83.
    5. repec:idb:idbbks:9152 is not listed on IDEAS

    More about this item

    Keywords

    public sector pay gap; government monopolistic power; wage-setting institutions;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:1539. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España). General contact details of provider: http://www.bde.es/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.