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Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data

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This paper analyses the evolution of public wages and the public-private wage gaps in the period prior to the adoption of the euro in the countries then engaged on the fulfillment of the Maastricht criteria. The results suggest a relative moderation in the growth of public sector wages in several European countries in the 1990s and the existence of a positive wage differential benefiting public employees that appears to have increased along the period. Therefore, the fact that European countries were undertaking efforts to comply with the requirements for adopting the single currency does not seem to have contributed to the reduction of the wage premium that the literature has typically associated with public sector employment. It is noteworthy that the countries where the wage differential is higher are Portugal, Ireland, Greece and Spain. This differential is, to a large extent, an actual wage premium associated with the public sector, but self-selection effects determining that the best workers prefer the public sector cannot be neglected. Nevertheless, the wage premia tend to be smaller in the case of individuals with higher earnings, making it difficult for the public sector to attract the more qualified workers. This difficulty may be worsened by across-the-board measures to reduce wages and employees.
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Journal (repec) 
Economic Bulletin