Wage Differentials and State-Private Sector Employment Choice in Yugoslavia

29 Pages Posted: 9 Oct 2003

See all articles by Michael Lokshin

Michael Lokshin

World Bank - Development Research Group (DECRG); National Research University Higher School of Economics

Branko Jovanovic

CapAnalysis

Abstract

In this study we use the newly available Yugoslavian Labor Force Survey data to investigate wage differentials and employment decisions in the state and private sectors in Yugoslavia. For the analysis we use three empirical models that rely on different statistical assumptions. We extend the standard switching regression model to allow non-normality in the joint distribution of the error terms. After correcting for the sector selection bias and controlling for workers' characteristics we find a private sector wage advantage. The wage premium is largest for workers with low education levels and declining for workers with higher educational levels. Given the regulatory and tax policies that pushed the private sector into the informal sphere of the economy during the period covered by our data, we argue that the state/private wage gap is likely to grow in the future. This will make it increasingly difficult for the state sector to attract and retain highly skilled employees.

Suggested Citation

Lokshin, Michael and Jovanovic, Branko, Wage Differentials and State-Private Sector Employment Choice in Yugoslavia. Economics of Transition, Vol. 11, pp. 463-491, September 2003. Available at SSRN: https://ssrn.com/abstract=452772

Michael Lokshin (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://econ.worldbank.org/staff/mlokshin

National Research University Higher School of Economics

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Branko Jovanovic

CapAnalysis ( email )

Washington, DC 20004
United States

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