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Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data

  • Maria Manuel Campos
  • Mário Centeno

This paper analyses the evolution of public wages and the public-private wage gaps in the period prior to the adoption of the euro in the countries then engaged on the fulfillment of the Maastricht criteria. The wage gaps are estimated controlling for employees’ observed and unobservable individual attributes, using a novel methodology of fixed effects quantile regressions. The results suggest, on the one hand, a relative moderation in the growth of public sector wages in several European countries in the 1990s. On the other hand, estimates obtainedfor the public-private wage differential imply an increase in the same period in the majority of countries in the sample, with public employees generally becoming more beneficiated vis-à-vis private sector employees with the same observed and unobservable characteristics. Therefore, the fact that European countries were undertaking efforts to comply with the requirements for adopting the single currency does not seem to have contributed to the reduction of the wage premium that the literature has typically associated with public sector employment. It is noteworthy that the countries where the wage differential is higher are Portugal, Ireland, Greece and Spain. This differential is, to a large extent, an actual wage premium associated with the public sector, but self-selection effects determining that the best workers prefer the public sector can not be neglected. Nevertheless, the wage premia tend to be smaller in the case of individuals with higher earnings, making it difficult to attract the more qualified workers to the public sector. This difficulty may be worsened by accross-the-board measures to reduce wages and employees.

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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201201.

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Date of creation: 2012
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Handle: RePEc:ptu:wpaper:w201201
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  1. Lucifora C. & Meurs D., 2004. "The Public Sector Pay Gap in France, Great Britain and Italy," Working Papers ERMES 0403, ERMES, University Paris 2.
  2. 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.
  3. Olivier Bargain & Prudence Kwenda, 2009. "The Informal Sector Wage Gap - New Evidence Using Quantile Estimations on Panel Data," Working Papers 200905, School of Economics, University College Dublin.
  4. Bargain, Olivier & Melly, Blaise, 2008. "Public Sector Pay Gap in France: New Evidence Using Panel Data," IZA Discussion Papers 3427, Institute for the Study of Labor (IZA).
  5. Maria Manuel Campos & Manuel Coutinho Pereira, 2009. "Wages and Incentives in the Portuguese Public Sector," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  6. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2011. "The Euro and Structural Reforms," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
  7. Blaise Melly, 2005. "Public-private sector wage differentials in Germany: Evidence from quantile regression," Empirical Economics, Springer, vol. 30(2), pages 505-520, 09.
  8. Maria Manuel Campos & Mário Centeno, 2011. "Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  9. Maria Manuel Campos, 2011. "Learning from the past: fiscal adjustments on the run-up to the euro area," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  10. Gerry Boyle & Rory McElligott & Jim O'Leary, 2004. "Public-Private Wage Differentials in Ireland, 1994-2001," Economics, Finance and Accounting Department Working Paper Series n1421004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  11. Pedro Portugal & Mário Centeno, 2001. "Wages of Civil Servants," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
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