You Get What You Pay For: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka

Ricardo Hausmann, Ljubica Nedelkoska () and Sehar Noor
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Ljubica Nedelkoska: Center for International Development at Harvard University

No 376, CID Working Papers from Center for International Development at Harvard University

Abstract: We study the factors behind the public sector premium in Albania and Sri Lanka, the group heterogeneity in the premium, the sources of public sector wage compression, and the impact of this compression on the way individuals self-select between the public and the private sector. Similar to other countries, the public sectors in Albania and Sri Lanka pay higher wages than the private sector, for all but the most valued employees. While half of the premium of Sri Lanka and two-thirds of it in Albania are explained by differences in the occupation-education-experience mix between the sectors, and the level of private sector informality, the unexplained part of the premium is significant enough to affect the preferences of working in the public sector for different groups. We show that the compressed distributions of public sector wages and benefits create incentives for positive sorting into the public sector among most employees, and negative sorting among the most productive ones.

Keywords: public sector premium; self-selection; Albania; Sri Lanka; wage compression (search for similar items in EconPapers)
JEL-codes: J31 J32 J38 O57 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-edu and nep-lma
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Citations: View citations in EconPapers (3)

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Working Paper: You Get What You Pay For: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cid:wpfacu:376

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