The State and Local Pay Penalty: The Effect of Skill and College Major
59 Pages Posted: 31 Oct 2013 Last revised: 10 Dec 2015
Date Written: October 29, 2013
This paper reassesses the public sector pay gap using AFQT score and college major as measures of skill. Among the college educated, there is strong evidence that those with lower skills enter the public sector. In contrast to the private sector, for college-educated public sector workers AFQT score is not correlated with pay, and college major is only weakly predictive of pay. Furthermore, simple controls for college major explain most of the public-private sector pay gap. I conclude that public sector pay gap is much smaller than previously estimated and pay rigidities cause significant skill-based selection between the sectors.
Keywords: Public sector economics, wage differentials
JEL Classification: H30, H72, H73
Suggested Citation: Suggested Citation