The Determinants and Trends in Public-Private Wage and Fringe Benefit Differential

• Main Author: Choi, Sun Ki
• Format: Others
• Published: UKnowledge 2016
• Subjects: wage differential; public-private; federal wage system; compensation; Labor Economics
• Online Access: http://uknowledge.uky.edu/economics_etds/26; http://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1025&context=economics_etds

The decline in private sector wages in the aftermath of the Great Recession reopened a longstanding debate about whether public sector employees make more than private sector employees. However, much of this debate has only focused on the difference in wages over the past few years. This paper uses the Current Population Survey from 1995-2013 to examine how the federal-private wage differential has evolved over time. Wage regressions are estimated by year for federal and private sector workers. I then use these estimates to calculate the federal-private wage differential. This is augmented with selectivity bias corrections for each year. Probit estimates of the probability of receiving employer-provided health insurance and a pension plan are also estimated for each year. The findings suggest that the federal pay differential is invariably positive, but fell during the 1990s, began to rise in the early 2000s, and has continued to rise to the end of the sample period. In this paper, I also examine the difference in wage and fringe benefit between state/local government employees and private sector employees. For the analysis, this paper uses the American Community Survey from 2012-2014 to examine how the state/local-private wage gaps vary by state. Probit estimates of the probability of receiving employer-sponsored health insurance are also estimated. The findings present a wide range of the wage differentials between state/local government employees and private sector counterparts. On the other hand, public employees enjoy higher probability of receiving health insurance through a current employer.