wages in euro-area countries
Governments in
many advanced economies, especially in Europe, currently face the challenge of
fiscal consolidation with the need to sustain potential growth. Against this backdrop,
the determination of public sector wages has drawn renewed interest in view of
its implications for public finances and potential consequences for the
efficiency of the public sector and possibly of the whole economy.
Various factors
can be adduced to explain public wage-setting behavior and its relationship
with private sector wages. While the public sector is subject to political constraints,
the private sector is subject to profit constraints. In most cases, the public sector
wants to be a good employer and may be willing to pay higher wages to its employees,
especially its lower-skilled workers. By contrast, the government might be reluctant
to award higher wages to high-skilled workers, as the public opinion might not
want to see public servants earning more than comparably trained and
experienced private sector counterparts. From an economic perspective, if the
government rewards its employees with higher remuneration than in the private
sector, prospective workers may decide to queue for these relatively
high-paying jobs, with private sector employment crowded out unless private
sector wages increase. If, instead, the public sector pays lower wages than in
the private sector, it might find it difficult to recruit and retain skilled
employees. The result could then be substandard public services.
Most of the early research on the wage gap
between private and public sectors focused on the USA; only a few studies were
carried out for non-US countries, and they were mainly based on macro data. At
the beginning of the ’90s, a number of papers began to address wage
differentials in Europe, Australia and some developing countries.
We use data for
the period 2004–2007 for ten European countries: Austria, Belgium, Germany,
Spain, France, Greece, Ireland, Italy, Portugal and Slovenia. Data are taken from
the European Union Statistics on Income and Living Conditions (EU-SILC), which
collects timely and comparable cross-sectional and longitudinal
multidimensional microdata on income, poverty, social exclusion and living
conditions. For both the cross-sectional and the longitudinal components, the
data are based on nationally representative probability samples of the population
residing in private households aged 16 and over, irrespective of language,
nationality or legal residence status. To make the sample representative of the
whole population, EU-SILC provides sample weights that are used throughout the
analysis that follows. We exclude self-employed and, to avoid possible bias
arising from self-selection in the labor market participation, we focus on men
in the age range 25–65.
We define a public-sector
worker as one employed in one of the following sectors according to the NACE
(REV 1.1) classification: “Public administration and defense, compulsory social
security”, “Education”, and “Health and social work”.
Such an
approximation tends to overestimate the share of public sector workers in total
employees, as some of the employees included in NACE sectors “Education” and
“Health and social work” are involved in activities classified as
market/private services (e.g. private hospitals and private schools). The share
of such activities varies across countries. For Germany, where health services
are mainly provided by the private sector, health sector workers are excluded
from our definition of public sector. In our sample, the share of public sector
employees range between 19% Germany and 38% Belgium. As for the private sector,
manufacturing and retail account for the largest shares in all countries,
representing altogether about half of the total. Other peculiarities are
country specific.
On average, the
overall wage gap is positive for all the countries. However, its size varies
considerably across countries: it ranges between 6 and 16%in Austria, Belgium,
Germany and France; it is around 30%in Italy, Ireland and Slovenia and 35% in
Greece and Spain; it is above 40% in Portugal. Workers’ characteristics explain
more than two-thirds of the overall gap in Austria, France, Slovenia and
Germany, slightly more than one half in Portugal, but only between 45 and 32%in
Ireland, Greece, Italy and Spain. Differences in wages that are explained by
different levels of endowments can be justified as a return on investment. The
unexplained component of the overall pay gap can instead be viewed as a premium
or a penalty. The price effect is greater than the endowment effect in Spain,
Greece, Ireland and Italy. Belgium is the only country where the unexplained
component of the wage differential is negative, implying a penalty for working
in the public sector. In Austria, France, Germany and Slovenia, we estimate a
premium of about 6% or less. In the other countries, the premium is higher: in
Italy, Ireland, Greece and Portugal, it ranges from 17 to 20%, whereas in Spain
it reaches 24%.
What are the
determinants of the premium is hard to tell, as there is no clear-cut evidence
about the importance of each explanatory variable. Investment in education is
rewarded significantly more in the public sector only in Austria, Spain and
Ireland.
In Belgium, Italy
and Portugal, the price effect associated with education is actually slightly
negative and significant. As for experience, in most countries, its
contribution is either not statistically significant or negative. Indeed, the
largest part of the public-sector premium comes from the intercept. If we run
region-specific regressions, the differences in the intercept decrease
significantly, suggesting that local labor market conditions might explain
differences in pay between the two sectors.
In Austria, the
overall wage gap is (almost) flat as both components remain constant along the
wage distribution. For a large part of the wage distribution, the overall wage gap
remains flat in most of the other countries (Belgium, France, Slovenia, Spain
and Greece); it is decreasing in Germany, and somewhat increasing in Ireland,
Italy and Portugal. As also found by other studies, the wage gap in favor of public
sector employees can be attributed to larger premia (price effect) at the
bottom tail of the wage distributions (where public sector workers do not
appear to be better endowed than private sector employees) and better
endowments at high wage levels, which compensate for smaller premia or even
penalties from working in the public sector.
Furthermore,
with respect to the existing literature, we also account for the rate of change
of the pay gap along the distribution. As a measure of the symmetry of the gap,
we calculate the interquartile range of the decomposition, i.e. the differences
in the coefficients at the 90th and the 50th quantiles and at the 50th and the
10th quantiles.
Comparing these
two differences, a larger negative number in the 90–50th quantile difference on
the unexplained part than in 50–10th difference implies that the fall in the
premium when moving from lower to higher wage levels is larger at the right end
of the distribution than at the left end. In all countries, except Germany and
Italy, the premium decreases faster from the median onward than below the
median. By contrast, the contribution of the explained factors increases faster
at the right side of the distribution than at the left.
We further
decompose the endowment effect and the price effect into the contribution of
each explanatory variable. Differences in education represent the largest portion
of the endowment effect at all quantiles and for all countries, reflecting the larger
shares of secondary and tertiary educated workers in the public sector than in the
private sector. The impact of differences in education is much larger at the
top than at the bottom of the wage distribution.
As for the
price effect, the premium from education is positive up to the median or so in
Austria, Spain, Greece, Ireland, Italy and Slovenia, negligible in Belgium and
France, and negative in Portugal. At the upper end of the wage distribution,
the contribution of education in explaining the public–private wage premium is
much lower or even negative in almost all the countries. This outcome suggests
that the higher return on educational investment in the public sector tends to
vanish when we move from low to high wages.
(Abstract from Public–private wage
differentials in euro-area countries: evidence from quantile decomposition analysis
article).
تعليقات
إرسال تعليق