The Public Pay Gap in Britain: Small Differences That (Don’t?) Matter
The 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Oct 2005|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew E. Clark & Fabien Postel-Vinay, 2004.
"Job security and job protection,"
DELTA Working Papers
2004-16, DELTA (Ecole normale supérieure).
- Andrew Clark & Fabien Postel-Vinay, 2005. "Job security and job protection," LSE Research Online Documents on Economics 19904, London School of Economics and Political Science, LSE Library.
- Andrew Clark & Fabien Postel-Vinay, 2005. "Job Security and Job Protection," CEP Discussion Papers dp0678, Centre for Economic Performance, LSE.
- Andrew E. Clark & Fabien Postel-Vinay, 2009. "Job security and job protection," Post-Print halshs-00754384, HAL.
- Clark, Andrew E & Postel-Vinay, Fabien, 2005. "Job Security and Job Protection," CEPR Discussion Papers 4927, C.E.P.R. Discussion Papers.
- Clark, Andrew E. & Postel-Vinay, Fabien, 2005. "Job Security and Job Protection," IZA Discussion Papers 1489, Institute for the Study of Labor (IZA).
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002.
"Consumption Over the Life Cycle,"
Econometric Society, vol. 70(1), pages 47-89, January.
- Gourinchas, P.O. & Parker, J.A., 1997. "Consumption Over the Life Cycle," Working papers 9722, Wisconsin Madison - Social Systems.
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000. "Consumption Over the Life-Cycle," CEPR Discussion Papers 2345, C.E.P.R. Discussion Papers.
- Arcidiacono, Peter & Jones, John B., 2000.
"Finite Mixture Distribution, Sequential Likelihood, and the EM Algorithm,"
00-16, Duke University, Department of Economics.
- Peter Arcidiacono & John Bailey Jones, 2003. "Finite Mixture Distributions, Sequential Likelihood and the EM Algorithm," Econometrica, Econometric Society, vol. 71(3), pages 933-946, 05.
- van Ophem, Hans, 1993. "A Modified Switching Regression Model for Earnings Differentials between the Public and Private Sectors in the Netherlands," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 215-224, May.
- Bender, Keith A, 1998. " The Central Government-Private Sector Wage Differential," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 177-220, April.
- Tullio Jappelli & Luigi Pistaferri, 2004.
"Intertemporal choice and consumption mobility,"
2004 Meeting Papers
195, Society for Economic Dynamics.
- Jappelli, Tullio & Pistaferri, Luigi, 2005. "Intertemporal choice and consumption mobility," CFS Working Paper Series 2005/28, Center for Financial Studies (CFS).
- Tullio Jappelli & Luigi Pistaferri, 2000. "Intertemporal Choice and Consumption Mobility," Econometric Society World Congress 2000 Contributed Papers 0118, Econometric Society.
- Tullio Jappelli & Luigi Pistaferri, 1999. "Intertemporal Choice and Consumption Mobility," CSEF Working Papers 23, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Dustmann, Christian & van Soest, Arthur, 1998.
"Public and private sector wages of male workers in Germany,"
European Economic Review,
Elsevier, vol. 42(8), pages 1417-1441, September.
- Dustmann, C. & van Soest, A., 1997. "Public and Private Sector Wages of Male Workers in Germany," Economics Working Papers eco97/13, European University Institute.
- Richard Blundell & Ian Preston, 1998.
"Consumption Inequality and Income Uncertainty,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 603-640.
- Audra J. Bowlus & Jean-Marc Robin, 2004.
"Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values,"
Review of Economic Studies,
Oxford University Press, vol. 71(3), pages 709-742.
- Audra J, Bowlus & Jean-Marc Robin, 2002. "Twenty Years of Rising Inequality in US Lifetime Labor Income Values," Working Papers 2002-58, Centre de Recherche en Economie et Statistique.
- Audra J. Bowlus & Jean-Marc Robin, 2004. "Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00279656, HAL.
- Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
- James M. Poterba & Kim S. Rueben, 1994. "The Distribution of Public Sector Wage Premia: New Evidence Using Quantile Regression Methods," NBER Working Papers 4734, National Bureau of Economic Research, Inc.
- Michael P. Keane & Kenneth I. Wolpin, 1995.
"The career decisions of young men,"
559, Federal Reserve Bank of Minneapolis.
- Lawrence F. Katz & Alan B. Krueger, 1991.
"Changes in the Structure of Wages in the Public and Private Sectors,"
NBER Working Papers
3667, National Bureau of Economic Research, Inc.
- Katz, L.F. & Krueger, A.B., 1991. "Chances In The Structure Of Wages In The Public And Private Sectors," Harvard Institute of Economic Research Working Papers 1547, Harvard - Institute of Economic Research.
- Lawrence F. Katz & Alan B. Krueger, 1991. "Changes in the Structure of Wages in the Public and Private Sectors," Working Papers 662, Princeton University, Department of Economics, Industrial Relations Section..
- Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
- Moshe Buchinsky & Jennifer Hunt, 1999.
"Wage Mobility In The United States,"
The Review of Economics and Statistics,
MIT Press, vol. 81(3), pages 351-368, August.
- Christopher J. Flinn, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 611-645.
- Mueller, Richard E., 1998. "Public-private sector wage differentials in Canada: evidence from quantile regressions," Economics Letters, Elsevier, vol. 60(2), pages 229-235, August.
- Stephen Nickell & Glenda Quintini, 2002. "The Consequences of The Decline in Public Sector Pay in Britain: A Little Bit of Evidence," Economic Journal, Royal Economic Society, vol. 112(477), pages F107-F118, February.
- Richard Blundell & Luigi Pistaferri & Ian Preston, 2004.
"Consumption inequality and partial insurance,"
IFS Working Papers
W04/28, Institute for Fiscal Studies.
- Mark B. Stewart, 2007.
"The interrelated dynamics of unemployment and low-wage employment,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(3), pages 511-531.
- Stewart, Mark, 2006. "The Inter-related Dynamics of Unemployment and Low-Wage Employment," The Warwick Economics Research Paper Series (TWERPS) 741, University of Warwick, Department of Economics.
- Richard Disney & Amanda Gosling, 1998. "Does it pay to work in the public sector?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 347-374, November.
- Shorrocks, A F, 1976. "Income Mobility and the Markov Assumption," Economic Journal, Royal Economic Society, vol. 86(343), pages 566-78, September.
- Moulton, Brent R, 1990. "A Reexamination of the Federal-Private Wage Differential in the United States," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 270-293, April.
- Zvi Eckstein & Kenneth I. Wolpin, 1999. "Why Youths Drop Out of High School: The Impact of Preferences, Opportunities, and Abilities," Econometrica, Econometric Society, vol. 67(6), pages 1295-1340, November.
- George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
- Cappellari, Lorenzo, 2002. "Earnings dynamics and uncertainty in Italy: how do they differ between the private and public sectors?," Labour Economics, Elsevier, vol. 9(4), pages 477-496, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5296. 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: ()
If references are entirely missing, you can add them using this form.