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

  • Taye Mengistae

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 l

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1998-20.

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Date of creation: 1998
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Handle: RePEc:csa:wpaper:1998-20
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  1. 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, vol. 19(2), pages 415-33, June.
  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., vol. 3(3), pages 229-34, July-Sept.
  3. Hartog, Joop & Oosterbeek, Hessel, 1993. "Public and private sector wages in the Netherlands," European Economic Review, Elsevier, vol. 37(1), pages 97-114, January.
  4. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
  5. 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.
  6. Russell Davidson & James G. MacKinnon, 1980. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Working Papers 378, Queen's University, Department of Economics.
  7. repec:dgr:kubcen:199544 is not listed on IDEAS
  8. 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, vol. 6(2), pages 229-53, April.
  9. 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.
  10. 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, vol. 48(2), pages 491-503, March.
  11. 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.
  12. 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, vol. 2(1), pages 106-27, January.
  13. Björklund, Anders, 1983. "Estimation of Wage Gains and Welfare Gains from Self-Selection Models," Working Paper Series 105, Research Institute of Industrial Economics.
  14. 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, vol. 41(1), pages 125-145, February.
  15. Upadhyay, Mukti P., 1997. "Can public sector employment spur human capital acquisition?," Economics Letters, Elsevier, vol. 56(1), pages 121-127, September.
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