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Public-Sector Wage Premium in Poland

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Gabriela Grotkowska

This book assesses the size, structure and evolution of the public-private wage gap in Poland – a country frequently regarded as an example of a successful transition from a centrally planned economy to a market economy. The author extensively elaborates on the issue of the selection of employment, and reviews the available studies concerning the public-private wage gap in developed and developing countries, with a particular attention to the evolution of methodology. Furthermore, the author examines recent empirical studies on the public-sector wage premium. Contrary to former research, they have provided positive estimates of the average public-sector wage premium, with significant differences in terms of employee characteristics and local labour market conditions.

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Chapter 3 Review of the literature on the public-sector wage premium

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The aim of this chapter is to review the literature regarding wage differentials between the public sector and the private sector. First, we will discuss the theoretical arguments for the public-sector wage premium, showing that there are possible explanations for the observed empirical regularities. Since modelling inter-section wage differentials has generally been empirically driven, while the scope of early empirical papers mainly concerned highly developed economies, theoretical considerations have, for a long time, focused on explaining the positive public-sector wage premium, particularly for disfavoured groups among the labour supply (low-qualified individuals, women, ethnic minorities, etc.). With the economic transition of centrally planned economies, the situation changed. Most of the research referring to countries in the initial phase of economic transition has led to the conclusion that the public-sector wage premium is negative. Different theoretical arguments have been invoked in order to produce predictions in accordance with observed regularities.

In the next section, we will first discuss the potential causes of the differences in pay between the public and private sectors. Then, we will focus on the specific situation of an economy in transition, with a dynamic process of privatization, an educational boom and other features typical for post-socialist countries. In the second part of the chapter, we will present a brief review of the empirical literature, focusing on the evolution of methods used to assess the public-sector wage premium and the obtained results. The review of available techniques starts with simple, single-equation parametric methods and then...

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