Abstract
This paper investigates the impact of the great recession of 2007–2009 and the debt crisis on the evolution of wages in the public and the private sectors, and the changes in the public–private sector pay gap in a group of 26 EU countries. The results indicate that earnings decreased in both sectors in most of the analysed countries between 2008 and 2013. However, the decline in wages was mostly due to the differences in returns to workers’ and jobs’ characteristics while the endowment effect affected earnings in the opposite direction. The findings suggest that the overall public–private wage gap reduced or remained unchanged in the majority of the European countries over the crisis, which was due to diminishing differences in the observed characteristics of workers and their jobs as well as shrinking positive discrimination of public employees.
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Notes
According to the National Bureau of Economic Research (NBER), the recession in the US started in December 2007 and lasted till June 2009 but many EU countries faced negative growth also in next years.
The full list of analysed countries with their country codes can be found in Table 7.
The NACE (fr.Nomenclature statistique des activités économiques dans la Communauté européenne) is the classification of economic activities in the EU.
Croatia and Slovenia are excluded from the analysis due to data availability.
The details about the construction of dataset can be found in the appendix.
For consistency reasons, regional dummies are not included in earnings regressions as they are not available for all analysed countries, e.g. the Netherlands or there is just one region distinguished at the NUTS 1 level in some countries e.g. Denmark, Estonia. The regression results do not differ significantly if regional effects are taken into account.
The complete list of explanatory variables and their definitions are presented in Table 8.
In order to simplify the notation i the subscript is omitted.
A detailed description of implemented policy measures with a direct impact on the general government sector wage bill can be found in Pérez et al. (2016)
Results presented in all tables are expressed either in natural logarithms (wages) or log points (differences in wages). If the percentage change between two values is small, it can be approximated by difference in natural logarithms. However, this statement is no longer valid when the percentage change increases. For this reason, all estimation results are transformed following the expression \((\exp ^{\beta }-1)\cdot 100\%\) and interpreted as percentage changes.
The interpretation of results of a detailed decomposition in case of the unexplained component is more problematic and does not provide a clear picture about the nature of a significant drop in a coefficient component—the coefficients are statistically insignificant or the statistically significant impact of worker’s or job’s characteristics is counterbalanced by the influence of a constant term. One possible explanation of the obtained outcomes could stem from the fact that a reduction in wages was achieved also by e.g. a cut in supplementary payments or freeze in promotions, and those actions are not reported in the EU-SILC survey and could not be controlled in the model.
Tables A.1–A.10 in the online appendix
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Acknowledgements
The author would like to thank Ira Gang, Gil Epstein, Tomasz Jȩdrzejowicz, seminar participants at the CERGE-EI, and two anonymous referees for their comments and suggestions.
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This research was supported by a grant from the CERGE-EI Foundation under a programme of the Global Development Network. All opinions expressed are those of the author and have not been endorsed by CERGE-EI, the GDN, or Narodowy Bank Polski.
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Appendix
Appendix
Dataset construction
In order to make the results comparable across years and countries, the following constraints are imposed on the sample. Due to the potential unreliability in reporting both working hours and earnings by self-employed and family workers the study is restricted to employees, who are older than 25 and younger than 60 years old. Setting the upper age limit at 60 allows to avoid the problem of using country-specific retirement age, as well as the problem of having to adjust the retirement age in time due to pension reforms, which were recently introduced in many European countries and are aimed at increasing the retirement age. Additionally, I exclude those who are still in education, collect pension benefits, work in the agricultural sector, or are in army. Due to the fact that, in many countries, public sector jobs are not open to foreigners, they are also withdrawn from the sample. Finally, all observations with missing values for variables of interest are also excluded.
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Sławińska, K. Public–private sector wage gap in a group of European countries: an empirical perspective. Empir Econ 60, 1747–1775 (2021). https://doi.org/10.1007/s00181-020-01841-3
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DOI: https://doi.org/10.1007/s00181-020-01841-3