The evolution of the public-private wage gap in the Netherlands (1979-1996): evidence from OLS and quantile regression
The average wage in the public sector differs from its private-sector counterpart. Typically, the first is higher than the latter. The evolution of this wage gap in the Netherlands is the topic of the lunch-seminar.
Though the existence of the gap is found to be persistent across time and across space, it is a puzzling finding from a strict economic theoretical point of view. Those underpaid could shift from private to public sector, or, the other way around, the overpaying sector could cut wage-costs. This should effectively erase any rents.
That’s theory talking, the empirical question is whether observationally equivalent workers earn more or less in the public sector. In order to assess that, wage equations are estimated for the Dutch case, covering three different years (1979, 1989, 1996). Overall result is that in 1979 in the public sector a worker with average characteristics received rents, but these had virtually eroded in 1989. Public sector pay saw some of a recovery in 1996, but high rents remained out of sight. The results should be seen against the background of the Wassenaar akkoord, including wage moderation in the eighties. Results from linear regression are complemented by quantile regression, which allows assessing the effects of covariates on the wage distribution at points different from the mean. The public-private wage differential is a natural arena for quantile regression, for public sector typically has a compressed wage distribution: pay differentials (might) then show up at the tails of the wage distributions, not (only) at the mean.
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