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Changing public sector wage differentials in the UK

  • Richard Disney

    ()

    (Institute for Fiscal Studies and University of Nottingham)

  • Amanda Gosling

    ()

    (Institute for Fiscal Studies and University of Kent)

The paper estimates public sector wage differentials and their changes over time for men and women in the United Kingdom using panel data from the New Earnings Survey/Annual Survey of Hours and Earnings for the period 1975 to 2006. It presents estimates that are robust to unobserved workforce characteristics and that also show the impact of policy changes and cyclical factors, by allowing the average measured public sector 'premium' or 'penalty' to be time-varying. The methodology also allows us to examine the extent to which discrepancies in public and private sector pay induce changing relative qualities of the sectoral workforces. Results are given for men and women comparing mean wages in the public and private sectors as a whole. There is, on average, a very small positive premium over the whole period for public sector women and a very small penalty for men; however the variability of the differential is much more striking than the average difference. The method can also be applied to sub-groups in the labour market, and we illustrate the case of female public sector nurses and midwives, where the comparison group are private sector workers who have ever been, or will be, public sector nurses or midwives. Measured variations in this nurses' differential reflects the various changes in pay structure and government pay policies over the period; it is striking however that in the last decade, the 'raw' differential accruing to public sector nurses and midwives has declined almost continuously, whereas the composition and quality-adjusted differential shows no overall trend.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W08/02.

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Length: 20 pp.
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:ifs:ifsewp:08/02
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  1. 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.
  2. Helene Turon & Fabien Postel-Vinay, 2005. "The Public Pay Gap in Britain: Small Differences that (Don't?) Matter," 2005 Meeting Papers 92, Society for Economic Dynamics.
  3. Haskel, Jonathan & Szymanski, Stefan, 1993. "Privatization, Liberalization, Wages and Employment: Theory and Evidence for the UK," Economica, London School of Economics and Political Science, vol. 60(238), pages 161-81, May.
  4. Jakubson, George, 1991. "Estimation and Testing of the Union Wage Effect Using Panel Data," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 971-91, October.
  5. Terrell, Katherine, 1993. "Public-private wage differentials in Haiti Do public servants earn a rent?," Journal of Development Economics, Elsevier, vol. 42(2), pages 293-314, December.
  6. Natalia Pimenta Monteiro, 2010. "Using propensity matching estimators to evaluate the impact of privatization on wages," Applied Economics, Taylor & Francis Journals, vol. 42(10), pages 1293-1313.
  7. Dustmann, C. & van Soest, A., 1997. "Public and Private Sector Wages of Male Workers in Germany," Economics Working Papers eco97/13, European University Institute.
  8. 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.
  9. Borland, Jeff & Hirschberg, Joe & Lye, Jenny, 1998. "Earnings of Public Sector and Private Sector Employees in Australia: Is There a Difference?," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 36-53, March.
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