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Evolution of Public/Private Sector Wage Gap: A Quantile Regression Approach

This study analyzes the public/private sector wage gap over time using a quantile regression approach. It examines the gap at different points in the earnings distribution and explores factors influencing the gap. The findings suggest changes in the relative positions of public sector workers and highlight the importance of considering long-term trends when formulating policies.

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Evolution of Public/Private Sector Wage Gap: A Quantile Regression Approach

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  1. Understanding the Evolution of the Public/Private Sector Wage Gap Over Time: A Quantile Regression Approach to Decomposing The Wage Distribution Using the Labour Force Survey Philip Murphy, David Blackaby, Nigel O’Leary and Anita Staneva

  2. Background • Work is part of a work theme funded as part of the ESRC Secondary Data Analysis Call – ES/K003281/1. • Analysis based on Labour Force Survey data over the period 1994 to 2011. • Examines the public/private sector wage gap at different points in the earnings distribution using decomposition methods based on counterfactual wage distributions.

  3. Background (continued) • Concerns over the size of the public sector pay bill have been heightened by the austerity and fiscal consolidation programme – 30 to 40% of government expenditure. • Popular conception is that workers in the public sector are paid more than private sector workers – which typically sector composition effects. • Pay increases in public sector limited to 1% per annum for two years in 2010 and subsequently extended. • Chancellor urged Pay Review Boards to consider regionalisation of public sector pay – as part of a wider agenda of implementing ‘market facing pay’ • Focus on small number of cross section studies that investigated the size of the public sector wage gap following the most recent recession but which failed to look at what had been happening over time.

  4. Background (continued) Three separate sub-period considered in the analysis: • 1994 to 1999 – recovery and growth with fiscal caution. • 1999 to 2007 – growth with ‘relaxation’ of fiscal control (pre-dating financial crisis). • 2007 to 2011- impending financial crisis, recession and fiscal austerity.

  5. Figure 1: Male Public Sector Wage Gap

  6. Figure 2: Female Public Sector Wage Gap

  7. Creating Machado and Mata (2005) Counterfactual Earnings Distributions

  8. Within Year Decomposition of the Public/Private Sector Wage Gap at Different Points of the Earnings Distribution Standard M&M Based on Oaxaca-Ransom Decomposition (1994)

  9. Male Public Sector Wage Differential (10th, 25th and 50th Percentiles)

  10. Male Public Sector Wage Differential (75th and 90th Percentiles)

  11. Female Public Sector Wage Differential (10th, 25th and 50th Percentiles)

  12. Female Public Sector Wage Differential (75th and 90th Percentiles)

  13. Between Year Decomposition of the Public/Sector Wage Gap at Different Percentiles of the Earnings Distribution M&M Based on Dononhue-Heckman (1991) Decomposition

  14. Interpreting the Components of the Between Year Earnings Decomposition

  15. Table 1: Decomposition of Changes in Public-Private Sector Wage Gap at Percentiles of the Earnings Distribution: Male Employees

  16. Table 1 (continued): Decomposition of Changes in Public-Private Sector Wage Gap at Percentiles of the Earnings Distribution: Male Employees

  17. Table 2: Decomposition of Changes in Public-Private Sector Wage Gap at Percentiles of the Earnings Distribution: Female Employees

  18. Table 2 (continued): Decomposition of Changes in Public-Private Sector Wage Gap at Percentiles of the Earnings Distribution: Female Employees

  19. Key Findings and Conclusions • For men there have been gains in the relative position of public sector workers at the bottom end of the distribution. • At the top there has been a significant deterioration in the relative position of male employees in the public sector, which has been accompanied by reductions in ‘workforce quality’ over the period 1999 to 2011. • For men the gains enjoyed by public sector workers at the bottom end of the distribution were largely confined to the period 2007 to 2011.

  20. Key Findings and Conclusions (continued) • For women the relative position of public sector employees has deteriorated across the distribution, despite improvements in the period 2007 to 2011. • For women the public sector wage premium has fallen most at the bottom end of the distribution. • Gain in ‘workforce quality’ at the bottom end of the distribution but a significant reduction at the top that was particularly marked in the period 1997 to 2007.

  21. Key Findings and Conclusions (continued) • Importance of taking a longer term view of the relative pay of public/private sector workers and how the relative pay and public sector wage premium varies across the distribution when framing policy. • Concerns about the future implications of the ‘austerity’ programme, designed to address the structural deficit, on relative pay and the quality of public service provision. • Recent evidence from SES (2012) suggests that the idea that employees in the public sector enjoy a ‘double’ premium is loosing currency.

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