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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.

Suggested Citation

  • Maria Manuel Campos & Mário Centeno, 2012. "Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data," Working Papers w201201, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w201201

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    References listed on IDEAS

    1. 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.
    2. 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).
    3. Olivier Bargain & Prudence Kwenda, 2014. "The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 117-153.
    4. Pedro Portugal & Mário Centeno, 2001. "Wages of Civil Servants," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    5. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2011. "The Euro and Structural Reforms," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
    6. Claudio Lucifora & Dominique Meurs, 2006. "The Public Sector Pay Gap In France, Great Britain And Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 43-59, March.
    7. 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.
    8. 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.
    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. Blaise Melly, 2005. "Public-private sector wage differentials in Germany: Evidence from quantile regression," Empirical Economics, Springer, vol. 30(2), pages 505-520, September.
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    Cited by:

    1. Aziza GARSAA & Nadine LEVRATTO & Luc TESSIER, 2015. "Do Exemptions From Social Security Contributions Affect Job Creation? New Empirical Evidence From French Overseas Regions," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 42, pages 79-104.
    2. Antón, José-Ignacio & Muñoz de Bustillo, Rafael, 2013. "Public-private sector wage differentials in Spain. An updated picture in the midst of the Great Recession," MPRA Paper 48897, University Library of Munich, Germany.
    3. Nadine Levratto & Aziza Garsaa & Luc Tessier, 2013. "To what extent do exemptions from social security contributions affect firm growth? New evidence using quantile estimations on panel data," Working Papers hal-00833049, HAL.
    4. Raúl Ramos & Esteban Sanromá & Hipólito Simón, 2014. "Public-Private Sector Wage Differentials by Type of Contract: Evidence from Spain," Hacienda Pública Española, IEF, vol. 208(1), pages 107-141, March.
    5. Valerija Botric, 2016. "Public vs. private sector wage skill premia in recession: Croatian experience," Working Papers 1607, The Institute of Economics, Zagreb.
    6. Hospido, Laura & Moral-Benito, Enrique, 2016. "The public sector wage premium in Spain: Evidence from longitudinal administrative data," Labour Economics, Elsevier, vol. 42(C), pages 101-122.
    7. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2013. "A Neoclassical Growth Model for the Insiders – Outsiders Society," CEPR Discussion Papers 9640, C.E.P.R. Discussion Papers.
    8. Aziza Garsaa & Nadine Levratto, 2015. "Do labor tax rebates facilitate firm growth? An empirical study on French establishments in the manufacturing industry, 2004–2011," Small Business Economics, Springer, vol. 45(3), pages 613-641, October.
    9. Kostas Mavromaras & Stephane Mahuteau & Kostas Mavromaras & Sue Richardson & Rong Zhu, 2017. "Public–Private Sector Wage Differentials in Australia," The Economic Record, The Economic Society of Australia, vol. 93, pages 105-121, June.
    10. Köllő, János, 2013. "A közszféra bérszintje és a magánszektorból átlépők szelekciója 1997-2008 között
      [Public-sector pay and flows from the private to the public sector]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 523-554.
    11. Carolina Castagnetti, 2015. "The Analysis of the Gender Wage Gap in the Italian Public Sector: a Quantile Approach for Panel Data," DEM Working Papers Series 109, University of Pavia, Department of Economics and Management.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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