Public-Private Wage Differentials in Euro Area Countries: Evidence from Quantile Decomposition Analysis

46 Pages Posted: 4 May 2013

Date Written: April 24, 2013

Abstract

We evaluate the public-private wage differential in ten euro area countries for men in the period 2004-2007. Using the most recent methodologies on a Mincerian equation, we assess how much of the pay differential between public and private sector workers depends on differences in endowments and how much on differences in the remuneration of such skills. For the first time, we look at the contribution of specific covariates at different quantiles of the wage distribution and decompose the variance into an explained and an unexplained component. We find that the pay gap is often decreasing over the distribution, and it is mostly determined by higher endowments in the upper tail of the wage distribution and by higher returns of such endowments at the low tail, with considerable heterogeneity across countries. We further find that the wage distribution in the public sector is more compressed than in the private sector in some countries but not in all countries. This is the results, for all countries, of more dispersed distributions of endowments in the public sector and of returns in the private sector.

Keywords: public employment, wage differentials, wage determination

JEL Classification: H50, J31, J45, J50

Suggested Citation

Depalo, Domenico and Giordano, Raffaela and Papapetrou, Evangelia, Public-Private Wage Differentials in Euro Area Countries: Evidence from Quantile Decomposition Analysis (April 24, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 907. Available at SSRN: https://ssrn.com/abstract=2259649 or http://dx.doi.org/10.2139/ssrn.2259649

Domenico Depalo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Raffaela Giordano

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Evangelia Papapetrou

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

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