Wage Differentials between the Public and the Private Sectors in India

Abstract

This study uses 1993-94 and 1999-2000 India Employment and Unemployment surveys to investigate wage differentials between the public and private sectors as well as workers' decisions to join a particular sector. To obtain robust estimates of the wage differential, we apply three econometric techniques each relying on a different set of assumptions about the process of job selection. All three methods show that differences in wages between public sector workers and workers in the formal-private and informal-casual sectors are positive and high. Estimates show that, on average, the public sector premium ranges between 62% and 102% over the private-formal sector, and between 164% and 259% over the informal-casual sector, depending on the choice of methodology. Our review of wage differentials (estimated using similar methodologies) across the world shows that India has one of the largest differentials between wages of public workers and workers in the formal private sector. The wage differentials in India tend to be higher in rural as compared to urban areas, and are higher among women than among men. The wage differential also tends to be higher for low-skilled workers. There is considerable evidence of an increase in the wage differential between 1993-1994 and 1999-2000.