Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State
63 Pages Posted: 29 Sep 2014
Date Written: August 25, 2014
Industry privatizations that result in exogenous job displacement of public employees can be exploited to estimate public sector wage rents. I report the findings of an original survey I administered to examine how wages of displaced government workers were affected by a 2012 privatization of liquor retailing in Washington State. Based on a panel difference-in-differences estimator I find that privatization reduced wages by $2.51 per hour or 17 percent compared to a counterfactual group of nearly identical non-displaced workers, with larger effects for women. I decompose wage losses into three rents identified in the literature: public sector rents, union premiums, and industry-specific human capital. Public sector wage premiums separately account for 85 to 90 percent of overall wage losses, while union premiums and industry-specific human capital account for just 10 to 15 percent. The results are consistent with a roughly 16 percent public sector wage premium.
Keywords: Public-sector labor markets, Union rents, Displaced workers, Privatization
JEL Classification: J45, J51, L33, J63, J68
Suggested Citation: Suggested Citation