Are Public Sector Workers in Developing Countries Overpaid? Evidence from a New Global Data Set

27 Pages Posted: 26 Feb 2019 Last revised: 4 Mar 2019

See all articles by T. H. Gindling

T. H. Gindling

University of Maryland, Baltimore County; IZA Institute of Labor Economics

Zahid Hasnain

World Bank

David Locke Newhouse

World Bank

Rong Shi

World Bank

Date Written: February 25, 2019

Abstract

This paper examines the public sector wage premium using nationally representative household surveys from 91 countries. The public sector generally pays a wage premium compared to all private sector salaried employees, but the size of the premium is sensitive to the choice of the private sector comparator and varies considerably by worker characteristics. For most countries, the average premium disappears when the public sector is compared to only formal sector private employees, especially when controlling for occupation. The public sector wage premium is higher for women and low-skilled workers. In contrast, high-skilled public sector employees are most often paid the same as their private sector counterparts or may even pay a penalty for working in the public sector. Consistent with this, the public sector premium is greater for employees with less education, those working in lower paid occupations, and those whose earnings fall in the lower part of the conditional earnings distribution. Across countries, the wage premium is only weakly associated with countries' level of development. These findings nuance the existing consensus that public sector workers tend to enjoy a significant wage premium over their private sector counterparts, and that this premium is especially large in low-income countries.

Keywords: Employment and Unemployment, Gender and Development, Labor Markets, Educational Sciences

Suggested Citation

Gindling, Thomas and Hasnain, Zahid and Newhouse, David Locke and Shi, Rong, Are Public Sector Workers in Developing Countries Overpaid? Evidence from a New Global Data Set (February 25, 2019). World Bank Policy Research Working Paper No. 8754, Available at SSRN: https://ssrn.com/abstract=3341736

Thomas Gindling (Contact Author)

University of Maryland, Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

Zahid Hasnain

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

David Locke Newhouse

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Rong Shi

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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