Annual Meetings

We compile novel data on average public wages and public-private wage differentials and analyze their patterns, characteristics, and implications across countries and over time. First, we find that public sector workers earn, on average, around 10 percent more relative to their private sector counterparts, with the premium being higher for women and low-skilled workers. Second, we find that public-private wage differentials vary over time, with economic and political cycles explaining some of this variation. Third, we find that both private wages and inflation respond positively to changes in public wage, with significant heterogeneity in the effects across countries, owing to differences in labor market characteristics and prevailing macroeconomic conditions. Changes in public wages are also found to be associated with a higher likelihood of a wage spiral.