Public–Private Sector Wage Differentials and the Business Cycle

Posted: 13 Oct 2015

See all articles by Terhi Maczulskij

Terhi Maczulskij

University of Jyväskylä - School of Business and Economics

Abstract

This paper uses microeconomic data for the period from 1990 to 2004 to examine the relationship between public–private sector wage differentials and labour market conditions in Finland. The results show that the public sector wage premium is strongly counter-cyclical. On average, a 10 percent increase in the local unemployment rate increases the public-private sector wage gap by one percent. Separate analyses by government sector and quantiles of the distribution of wages reveal that it is local government workers and those working at lower skill levels who benefit more from increasing unemployment rate. The paper also exploits the longitudinal structure of the data to examine whether the results are constant over time. These results indicate that the cyclical pattern primarily emerges in years with deteriorated labour markets.

Keywords: Public sector pay, Wage curve

JEL Classification: E32, J31, J45

Suggested Citation

Maczulskij, Terhi, Public–Private Sector Wage Differentials and the Business Cycle. Economic Systems, Vol. 37, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2673501

Terhi Maczulskij (Contact Author)

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

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