Although many economists have addressed public-private wage differentials both in developed and developing economies, but the issue of inequality is more important primarily in developing countries where public sector usually comprise of a major part of the wage employment. Thus, the difference in public sector and private sector employment could influence wage settings. This, paper will be considering the public-private wage differential in Turkey. The data which we will use to explain the wage differential, will be an individual level data to explain the employment sector selection and the wage differentials in the public and private sectors. Turkey, where public sector formed major part of wage employment, it was important to study the wage differential because of following reason:
- Privatization of State Owned Enterprises(SOE) in 1980, followed dismissal of large number of workers. Thus, implementing SOE reform in our analysis will help us in understanding compensation packages for dismissed workers from the reformed or privatized firms.
For the purpose of analysis, we only considered, covered private sector employees. Covered Private Sector employees are those who have social insurance program associated with his/her employment. This is because uncovered private sector employees have lower wages than the covered sector employees and thus, their comparison with public sector employee might give a direct conclusion that public sector employees are earning substantial premium in wages. Hence, only a comparison between private sector and covered public sector employee was relevant.
In Turkey, Public Sector comprises of public administration and SOE and by the end of 1996, total public employment in Turkey was 11.6% of total employment. Also, public sector employment is inclined towards attaining public welfare than private motive, which is a prime objective of private sector firms. Thus, according to research conducted by Mazumdar, private sector firms aim to attain a point on the demand curve for the labor in order to ascertain the employment and wage levels. Contrary to it, public sector operates under a budget constraint to determine its wage levels. Thus, it might be possible that wages in public sector can be higher or lower to private sector levels. He refered to a model of wage differential where a public sector employee might take advantage of inelastic demand curve and thus may have higher wages. Later, Moore and Raisan,1991, also proposed their compensating differential theory to explain wage differentials between Public and Private Sector Employee.
However, various emperical results shows that public sector employees are not always overpaid and it all depends upon current economic policies of the Government. In other words, as the government changes its polices on economic environment, the pay differential between public and private wages also changes. For Instance, during late 1980’s when the government wage bill was passed, a substantial decrease in wages of public sector employee were recorded. However, in earlier 1990’s and moonlightning by public workers, real wages increased and achieved the 1980’s level.
However, a simple statistical test known as ‘’Difference in Means’’ was carried out which showed that wages of Public Sector Administration are not different from Private Sector Employees at 5% level of significance. Thus, it was concluded that public sector employee of Turkey are not always paid higher than private sector. Hence, analysis of changes both in public-private pay differentials should be carried out using recent data and statistical techniques.
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