Understanding the Public Sector Pay Gap

Maria Campos, Domenico Depalo, Evangelia Papapetrou, Javier Pérez and Roberto Ramos
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Evangelia Papapetrou: Bank of Greece

No 1539, Working Papers from Banco de España

Abstract: We uncover the short- and long-run structural determinants of the existing cross-country heterogeneity in public-private pay differentials for a broad set of OECD countries. We explore micro data (EU-SILC, 2004-2012) and macro data (1970-2014). Three results stand out. First, when looking at pay gaps based on individual data, more than half of the cross-sectional variation of the sample can be accounted for by the degree of exposure to international competition, and by the size of the public sector labour force and its composition (i.e. the intensity in the provision of pure public goods), while labour market institutions play a very limited role. Second, we find that pay gaps have narrowed significantly during the recent financial crisis; nevertheless, this decrease can be explained by the widespread process of fiscal consolidation rather than by structural factors. Third, we find that in the log-run openness to international trade and improvements in the institutional quality of governments are associated with decreases in the public-private wage gap. Our findings can be rationalised by a body of research stressing non-competitive wage settlements in the public sector.

Keywords: public sector pay gap; government monopolistic power; wage-setting institutions (search for similar items in EconPapers)
JEL-codes: H50 J31 J45 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Understanding the public sector pay gap (2017)
Working Paper: Understanding the public sector pay gap (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1539

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