Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials Using LEED from Hungary, 1986-2003

Upjohn Institute Staff Working Paper No. 07-134

IZA Discussion Paper No. 3135

38 Pages Posted: 6 Feb 2007

See all articles by John S. Earle

John S. Earle

George Mason University - Schar School of Policy and Government; IZA Institute of Labor Economics

Almos Telegdy

Corvinus University of Budapest; Magyar Nemzeti Bank

Multiple version iconThere are 2 versions of this paper

Date Written: October 2007

Abstract

Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps in the data, 0.24 for public-private and 0.40 for foreign-domestic, are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia to 0.16 and 0.34, respectively, and controlling for employment size further reduces them to 0.07 and 0.28. We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium to 0.07. The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and they illustrate the value of analyzing LEED to take such correlated factors into account.

Keywords: wages, linked employer-employee data, public sector labor markets, foreign direct investment

JEL Classification: D21, G34, J23, J31, L33, P31

Suggested Citation

Earle, John S. and Telegdy, Almos, Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials Using LEED from Hungary, 1986-2003 (October 2007). Upjohn Institute Staff Working Paper No. 07-134, IZA Discussion Paper No. 3135, Available at SSRN: https://ssrn.com/abstract=960991

John S. Earle (Contact Author)

George Mason University - Schar School of Policy and Government ( email )

3351 Fairfax Drive
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703-993-8023 (Phone)

HOME PAGE: http://earle.gmu.edu

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Almos Telegdy

Corvinus University of Budapest ( email )

Hungary

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

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