The Greek Public Sector Wage Premium before the Crisis: Size, Selection and Relative Valuation of Characteristics

Abstract

We examine the Greek public-private wage differential before the debt crisis to evaluate the prospective impact of the recent public sector pay cuts. We find a large public premium which persists after controlling for individual and job characteristics. For men, much of this is accounted for by self-selection into the sector that rewards better their characteristics, while for women it is largely driven by sectoral differences in returns. We attribute these effects to more egalitarian pay structures in the public sector and to demand problems in the private sector. The recent policy measures only partially change this situation, as wage deflation extends to the private sector, preserving public premia for the low paid.

Public–Private Sector Wage Differentials in Australia

“…The public-private sector pay gap has been researched for many years, with a history that goes back to at least the early 1970s in America (Ehrenbergh & Schwarz, 1986). The topic has captured rising attention from researchers elsewhere during the last two decades (Poterba & Rueben, 1994;Borland et al, 1998;Mueller, 1998;Blackaby et al, 1999;Melly, 2005;Lucifora & Meurs, 2006;Elliott et al, 2007;Christopoulou & Monastiriotis, 2013;Lausev, 2014;Nikolic, 2014). Four main findings show up regularly in prior studies: on average, public sector workers receive higher pay than private sector workers; this pay gap is larger for women than for men; the distribution of pay among public sector workers is more compressed than for the private sector and hence the pay gap in favour of public sector workers is highest for those lower down the pay distribution; and the pay gap varies by geographical regions within nations.…”

Public-private wage duality during the Greek crisis

“…In result, public sector employees with identical skills and job content often earned very different wages across different segments of the public sector -and almost invariably significantly higher wages than their private sector counterparts even in similar sectors and occupations (Christopoulou and Monastiriotis, 2014). A manifestation of this can be found in the evolution of wages and productivity, prior to the crisis, in sectors with strong public employment presence vis-à-vis the rest of the economy.…”

“…Following common practice, we take the mean value of the bundles as a proxy for each individual's monthly wage. Although clearly imperfect, this is the only possible way to analyse wages in Greece and it has been shown by Christopoulou and Monastiriotis (2014) to produce robust estimates of Mincer equations when using alternative methods of estimation (OLS and interval regressions).…”

“…In other cases the decline in the public sector premium was associated with increased compression in the distribution of public sector pay (e.g., as reported by Hospido and Moral-Benito, 2014, for Spain, where the public sector premium fell between 2008 and 2012 by some 25%). In Greece, pre-crisis public sector premia had been known to be large and persistent (Papapetrou, 2006;Giordano et al, 2011;Christofides and Michael, 2013;Christopoulou and Monastiriotis, 2014). It is thus important, given the size of the crisis in Greece and the pervasiveness of the reform measures that were followed, to examine how the public sector premium evolved during the crisis.…”

“…In Table A3 in the online Appendix, we show that public history does not predict wages conditional on the control variables in all cases apart from year 2013 in the public sector (where we never find significant selection effects). For a discussion on the performance of this instrument relative to other candidate instruments, see Christopoulou and Monastiriotis (2014). For sector-specific wage regressions unadjusted for selection, see Table A4 in the online Appendix.…”