Journal of Labor Research

, Volume 36, Issue 4, pp 347–388 | Cite as

Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State

  • Andrew Chamberlain


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.


Public-sector labor markets Union rents Displaced workers Privatization 

JEL Classifications

J45 J51 L33 J63 J68 


  1. Addison JT, Portugal P (1989) Job displacement, relative wage changes, and duration of unemployment. J Labor Econ 7(3):281–302CrossRefGoogle Scholar
  2. Blackburn ML (2007) Estimating wage differentials without logarithms. Labour Econ 14(1):73–98CrossRefGoogle Scholar
  3. Blackburn ML (2008) Are union wage differentials in the united states falling? Ind Rel 47(3):390–418CrossRefGoogle Scholar
  4. Borjas GJ (1980) Wage determination in the federal government: the role of constituents and bureaucrats. J Polit Econ 88(6):1110–1147CrossRefGoogle Scholar
  5. Brueckner JK, Neumark D (2014) Beaches, sunshine, and public sector pay: theory and evidence on amenities and rent extraction by government workers. Amer Econ J Econ Policy 6(2):198–230CrossRefGoogle Scholar
  6. Carrington WJ (1993) Wage loses for displaced workers: is it really the firm that matters? J Human Resour 28(3):435–462CrossRefGoogle Scholar
  7. Clemens J (2012) State fiscal adjustment during times of stress: possible causes of the severity and composition of budget cuts. Available at SSRN 2170557Google Scholar
  8. Clemens J, Cutler DM (2014) Who pays for public employee health costs? J Health Econ 38(C):65–76Google Scholar
  9. Disney RF, Gosling A (2003) A new method for estimating public sector pay premia: evidence from britain in the 1990s, Center for Economic Policy Research Discussion Paper No. 3787Google Scholar
  10. Ehrenberg RG, Schwartz JL (1986) Public sector labor markets. In: Ashenfelter O, Layard, R (eds) Handbook of labor economics, vol 2, chapter 22, pp 1219–1268Google Scholar
  11. Falk JR (2015) Comparing federal and private-sector wages without logs. Contemp Econ Policy 33(1):176–189CrossRefGoogle Scholar
  12. Fallick BC (1996) A review of the recent empirical literature on displaced workers. Ind Labor Relat Rev 50(1):5–16CrossRefGoogle Scholar
  13. Firpo S, Gonzaga G (2010) Going private: public sector rents and privatization in Brazil. In: Anais do Encontro Brasileiro de Econometria, vol. 32. Sociedade Brasileira de Econometria, SalvadoGoogle Scholar
  14. Fogel W, Lewin D (1974) Wage determination in the public sector. Ind Labor Relat Rev 27(3):410–431CrossRefGoogle Scholar
  15. Galiani S, Sturzenegger F (2008) The impact of privatization on the earnings of restructured workers: evidence from the oil industry. J Labor Res 29(2):162–176CrossRefGoogle Scholar
  16. Gittleman M, Pierce B (2012) Compensation for state and local government workers. J Econ Perspect 26(1):217–242CrossRefGoogle Scholar
  17. Glaeser EL, Ponzetto GAM (2013) Shrouded costs of government: the political economy of state and local public pensions. NBER Working Paper 18976Google Scholar
  18. Gregory RG, Borland J (1999) Recent developments in public sector labor markets. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 3, chapter 53, pp 3573–3630Google Scholar
  19. Gyourko J, Tracy J (1988) An analysis of public- and private-sector wages allowing for endogenous choices of both government and union status. J Labor Econ 6(2):229–253CrossRefGoogle Scholar
  20. Hamermesh DS (1989) What Do We Know About Worker Displacement In the U.S.? Ind Relat 28(1):51–59CrossRefGoogle Scholar
  21. Heckman J, Ichimura H, Todd P (1998) Matching as an econometric evaluation estimator. Rev Econ Stud 65(2):261–294CrossRefGoogle Scholar
  22. Hirsch BT, Wachter ML, Gillula JW (1999) Postal service compensation and the comparability standard. Res Labor Econ 18:243–279CrossRefGoogle Scholar
  23. Holmlund B (1993) Wage setting in private and public sectors in a model with endogenous government behavior. Eur J Polit Econ 9(2):149–162CrossRefGoogle Scholar
  24. Keefe J (2012) Are public employees overpaid? Labor Stud J 37(1):104–126CrossRefGoogle Scholar
  25. Kletzer LG (1998) Job displacement. J Econ Perspect 12(1):115–136CrossRefGoogle Scholar
  26. Krueger AB (1988) Are public sector workers paid more than their alternative wage? Evidence from longitudinal data and job queues. In: When public sector workers unionize. University of Chicago Press, pp 217–242Google Scholar
  27. Koenker R, Bassett G (1978) Regression quantiles. Econometrica 46(1):33–50CrossRefGoogle Scholar
  28. Lee S-H (2004) A reexamination of public-sector wage differentials in the united states: evidence from the NLSY with Geocode. Ind Relat 43(2):448–472CrossRefGoogle Scholar
  29. Linneman PD, Wachter ML, Carter WH (1990) Evaluating the evidence on union employment and wages. Ind Labor Relat Rev 44(1):34–53CrossRefGoogle Scholar
  30. Monteiro NP (2008) Using propensity score matching estimators to evaluate the impact of privatization on wages. Appl Econ 42(10):1293–1313CrossRefGoogle Scholar
  31. Moulton BR (1990) A reexamination of the federal-private wage differential in the United States. J Labor Econ 8(2):270–293CrossRefGoogle Scholar
  32. Neal D (1995) Industry-specific human capital: evidence from displaced workers. J Labor Econ 13(4):653–677CrossRefGoogle Scholar
  33. Oaxaca R (1973) Male-female wage differentials in urban labor markets. Int Econ Rev 14(3):693–709CrossRefGoogle Scholar
  34. O’Brien KM (1992) Compensation, employment, and the political activity of public employee unions. J Labor Res 13(2):189–203CrossRefGoogle Scholar
  35. Ong PM, Mar D (1992) Post-layoff earnings among semiconductor workers. Ind Labor Relat Rev 45(2):366–379CrossRefGoogle Scholar
  36. Robinson C, Tomes N (1984) Union wage differentials in the public and private sectors: a simultaneous equations specification. J Labor Econs 2(1):106–127CrossRefGoogle Scholar
  37. Reder MW (1975) The theory of employment and wages in the public sector. In: Hamermesh D S (ed) Labor in the public and nonprofit sectors. Princeton University PressGoogle Scholar
  38. Smith SP (1976) Pay differentials between federal government and private sector workers. Ind Labor Relat Rev 29(2):179–197CrossRefGoogle Scholar
  39. Todd PE (2008) Matching estimators, 2nd edn. In: Durlauf S N, Blume L E (eds) The new palgrave dictionary of economics. Palgrave MacmillanGoogle Scholar
  40. Visser J (2006) Union membership statistics in 24 countries. Monthly Labor Rev 129(38):38–49Google Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CaliforniaSan DiegoUSA
  2. 2.Glassdoor, Inc.Mill ValleyUSA

Personalised recommendations