Are public sector employees paid more?

Bryan Caplan has studied the literature and he quotes the summary of Philipp Bewerunge and Harvey Rosen:

The literature on wage differentials between public and private sector employees spans roughly four decades, originating with Smith’s [1976a, 1976b, 1977] seminal series of papers. The core of her analysis is the estimation of conventional human capital earnings functions. For example, in Smith [1976b] she uses 1973 Current Population Survey (CPS) data to estimate for each gender a regression of the logarithm of the wage on various worker characteristics such as years of schooling and race, including a series of dichotomous variables indicating whether each individual worked in the federal, state, or local government sectors (the private sector is the omitted category). For males, she finds wage differentials relative to the private sector of 19 percent in federal government and -4.9 percent in local government. The coefficient on the state government variable is statistically insignificant. The differentials for female workers are 31 percent in federal government, 12 percent in state government, and 3.6 percent in local government…

Papers subsequent to Smith’s have modified her approach by trying to correct for self-selection of workers into various sectors, by using panel data to estimate fixed effects models, and by estimating models on a state-by-state basis to allow for the possibility that labor market institutions, and hence public sector wage differentials, vary across states. A fair way to summarize the findings in this literature is as follows: a robust result, found in almost all the research from Smith’s early papers on, is that there is a substantial positive wage differential for federal employees, even after controlling for worker characteristics in the standard way.

I recall this characterization not receiving wide circulation during the recent disputes over Wisconsin and the like, so I thought I would pass it along.


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