Public Sector Pay in NZ

According to official statistics, average pay in the public sector is 25% higher than in the private sector in New Zealand. This paper examines the factors underlying public and private sector pay differences using several complementary analyses. First, we use Household Labour Force Survey (Income) data to decompose the raw hourly wage difference into components associated with observable differences in jobs and workers. Second, we use administrative data to identify (FTE monthly) pay differences associated with workers and the firms they work for. Third, we analyse FTE earnings changes associated with workers who switch between public and private sector jobs over time. We find consistent evidence from these analyses that the public sector pay premium is 5–8% after adjusting for observable job differences, differences associated with workers and firms, or associated with workers who switch sectors. Finally, we use proprietary job evaluation and remuneration data to control for content-size differences between public and private sector jobs. Compared to the raw average public sector premium in these data of about 6% in base salary and 3% in total remuneration, controlling for job size differences we find that private sector pay is higher than public sector pay for similarly sized jobs, particularly for remuneration other than base salary.