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Higher wages, lower pay : public vs. private sector compensation in Peru

  • Coppola, Andrea
  • Calvo-Gonzalez, Oscar

Do public sector employees earn less than their counterparts in the private sector? This paper addresses this question in the case of Peru, a country where civil service reform is being debated yet the only available empirical studies on wage differentials date back to the late 1980s. Using data from the 2009 national household survey, the authors perform a multiple step analysis. First, they estimate a single equation with a public sector dummy, which is found to be statistically significant and positive when only monetary wages are taken into account. However, when in-kind payments and bonuses are included to measure compensation, the analysis finds a private sector premium. Second, they estimate for public and formal private employees two distinct wage functions, including the inverse Mills ratio. This takes into account the selection bias resulting from workers self-selecting into the public or private sector. Third, these results are used to decompose wage differentials using the standard Oaxaca-Blinder approach. The results show that the compensation differentials are not significant except for the sub-sample of employees that achieved a postgraduate degree.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5858.

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Date of creation: 01 Oct 2011
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Handle: RePEc:wbk:wbrwps:5858
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  1. Stelcner, M. & Van Der Gaag, J. & Vijverberg, W., 1988. "Public-Private Sector Wage Differentials In Peru, 1985-86," Papers 41, World Bank - Living Standards Measurement.
  2. Blomquist, N Soren, 1979. " Wage Rates and Personal Characteristics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(4), pages 505-20.
  3. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  4. Anos Casero, Paloma & Seshan, Ganesh, 2006. "Public-private sector wage differentials and returns to education in Djibouti," Policy Research Working Paper Series 3923, The World Bank.
  5. Axel Heitmueller, 2006. "Public-private sector pay differentials in a devolved Scotland," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 295-323, November.
  6. Ugo Panizza, 2001. "Public Sector Wages and Bureaucratic Quality: Evidence from Latin America," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  7. Panizza, Ugo & Qiang, Christine Zhen-Wei, 2005. "Public-private wage differential and gender gap in Latin America: Spoiled bureaucrats and exploited women?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(6), pages 810-833, December.
  8. van der Gaag, Jacques & Stelcner, Morton & Vijverberg, Wim, 1989. "Wage Differentials and Moonlighting by Civil Servants: Evidence from Cote d'Ivoire and Peru," World Bank Economic Review, World Bank Group, vol. 3(1), pages 67-95, January.
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