The Public Pay Gap in Britain: Small Differences that (Don'T?) Matter

63 Pages Posted: 18 Jul 2005

See all articles by Fabien Postel-Vinay

Fabien Postel-Vinay

Centre for Economic Policy Research (CEPR); University of Bristol; IZA Institute of Labor Economics; Centre for Structural Econometrics (CSE)

Hélène Turon

University of Bristol; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2005

Abstract

The existing literature on inequality between private and public sectors focuses on cross-section differences in earnings levels. A more general way of looking at inequality between sectors is to recognize that forward-looking agents will care about income and job mobility too. We show that these are substantially different between the two sectors. Using data from the BHPS, we estimate a model of income and employment dynamics over seven years. We allow for unobserved heterogeneity in the propensity to be unemployed or employed in either job sector and in terms of the income process. We then combine the results into lifetime values of jobs in either sector and carry out a cross-section comparative analysis of these values. We have four main findings. First focusing on cross-sector differences in terms of the income process only, we detect a positive average public premium both in income flows and in the present discounted sum of future income flows. Second, most of the observed relative income compression in the public sector is due to a lower variance of the transitory component of income. Third, when taking job mobility into account, the lifetime public premium is essentially zero for workers that we categorize as "high-employability" individuals, suggesting that the UK labor market is sufficiently mobile to ensure a rapid allocation of workers into their "natural" sector. Fourth, we find some evidence of job queuing for public sector jobs among "low-employability" workers.

Keywords: income dynamics, job mobility, public-private inequality, selection effects

JEL Classification: J45, J31, J62

Suggested Citation

Postel-Vinay, Fabien and Postel-Vinay, Fabien and Turon, Helene, The Public Pay Gap in Britain: Small Differences that (Don'T?) Matter (June 2005). Available at SSRN: https://ssrn.com/abstract=756369 or http://dx.doi.org/10.2139/ssrn.756369

Fabien Postel-Vinay

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, Avon BS8 ITH
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Structural Econometrics (CSE) ( email )

Department of Economics, University of Bristol
8 Woodland Road
Bristol, BS8 1TN
United Kingdom

Helene Turon (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, Avon BS8 ITH
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
74
Abstract Views
1,229
Rank
524,237
PlumX Metrics