Higher Wages, Lower Pay: Public vs. Private Sector Compensation in Peru

28 Pages Posted: 20 Apr 2016

See all articles by Andrea Coppola

Andrea Coppola

University of Rome Tor Vergata - Department of Economics and Law; World Bank; Ministry of Economy and Finance, Italy

Oscar Calvo‐González

World Bank

Date Written: October 1, 2011

Abstract

Do public sector employees earn less than their counterparts in the private sector? This paper addresses this question in the case of Peru, a country where civil service reform is being debated yet the only available empirical studies on wage differentials date back to the late 1980s. Using data from the 2009 national household survey, the authors perform a multiple step analysis. First, they estimate a single equation with a public sector dummy, which is found to be statistically significant and positive when only monetary wages are taken into account. However, when in-kind payments and bonuses are included to measure compensation, the analysis finds a private sector premium. Second, they estimate for public and formal private employees two distinct wage functions, including the inverse Mills ratio. This takes into account the selection bias resulting from workers self-selecting into the public or private sector. Third, these results are used to decompose wage differentials using the standard Oaxaca-Blinder approach. The results show that the compensation differentials are not significant except for the sub-sample of employees that achieved a postgraduate degree.

Keywords: Labor Markets, Public Sector Economics, Inequality, Public Sector Management and Reform, Education and Digital Divide

Suggested Citation

Coppola, Andrea and Coppola, Andrea and Calvo-Gonzalez, Oscar, Higher Wages, Lower Pay: Public vs. Private Sector Compensation in Peru (October 1, 2011). World Bank Policy Research Working Paper No. 5858, Available at SSRN: https://ssrn.com/abstract=1950023

Andrea Coppola (Contact Author)

University of Rome Tor Vergata - Department of Economics and Law ( email )

Rome, I-00133

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ministry of Economy and Finance, Italy ( email )

Via XX Settembre 97
Rome, Rome 00187
Italy

Oscar Calvo-Gonzalez

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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