Hildegunn Stokke (p), Jorn Rattso

Sabine D'Costa

Studies of wage inequality concentrate on private wages. Public sector wages are typically assumed to contribute to overall wage equality. We challenge this understanding in an analysis of the relative skill premium in public versus private sectors. Heterogeneity of relative wage compression is investigated with respect to gender and geography. There is a geographic aspect of wage inequality since city labor markets are different from labor markets in the periphery. The combined geographic and private-public dimensions affect overall wage inequality. The main result is that relative public sector wage compression is a male phenomenon and prevalent only in large cities. Wage setting for female workers in the public sector increases wage inequality in all regions, particularly in the periphery.

We apply the standard framework of wage inequality analysis, Mincer equations, to analyze the relative college premium between public and private sectors. All comparisons of public and private workers struggle with selection issues. The regression models include observed individual worker characteristics and capture unobservables using fixed effects for regions, workers and firms. The identification consequently is based on shifters between the sectors and movers between city-size groups. Compared to existing studies we also account for unobserved firm quality, motivated by recent studies of matching in the labor market.

To estimate the relative skill wage premium, we use register data for Norway during 2001–2014. The skill premium is measured by the college-educated to high-school-educated wage gap for private and public sectors separately. The raw data confirm the pattern of relatively lower skill premium in the public sector. However, in the aggregate, more compressed wages in the public compared to the private sector is fully explained by differences in observed and unobserved worker characteristics in the two sectors. Addressing gender and geographic heterogeneity reveals interesting structural variation. Public sector wage compression is only found for male workers in large cities, while for female workers, the public sector increases wage inequality in all regions, particularly in the periphery. The result is consistent with policies promoting recruitment of high-educated female workers and expansion of public services in the periphery counterbalancing the desired equality effect of public wages. Our main finding is that the public sector reduces urban wage inequality for men, while it adds to wage inequality in the periphery. This brings new evidence to the policy debate about wage inequality and regional differentiation of public sector wages.

Casto Martin Montero Kuscevic, Carlos Mendez, Harry Aginta (p)

Hildegunn Stokke

This paper estimates the Okun’s law using a spatial panel approach for Indonesian’s districts over the period 2009-2020. Given the geography of the archipelago, we deviate from the traditional definitions of neighbors and use instead a Thiessen polygons structure to capture the spillovers from neighboring regions. Our results show that the Okun’s Law relies heavily on the regional economic and industrial structure, revealing a differentiated Okun’s coefficient for eastern (agrarian) and western (industrialized) provinces. The magnitude of the spillovers supports the appropriateness of using the Thiessen polygons structure to build the weight matrix.

Sabine D'Costa (p)

Harry Aginta

This paper looks at gender as a new, important source of heterogeneity in the urban wage premium. Using a representative panel of nearly 1,250,000 male and female observations in Great Britain from the ASHE/NES survey covering the years 1998-2019, I find that, after controlling for individual and job characteristics as well as sorting on unobserved worker ability, the urban wage premium is 44 % greater for women than for men. The urban wage premium is therefore significantly underestimated in previous estimates that are either based on male workers or gender-neutral. I also find that sorting on time-invariant ability into cities is more pronounced for men than for women. Investigating the urban wage premium over time reveals that the gender difference is driven by the pre-financial crisis period. It disappears during the crisis as women’s urban wage premium drastically drops, from 2.9% to 1.4%. The overall results also hide important differences in the urban wage premium across city size categories: the urban wage premium for small and big cities entirely disappears over time and only London maintains a wage premium over other labour markets in the post-crisis period. I then investigate the channels that can theoretically explain the gender difference in urban wage premium and its evolution over time. I find no evidence of sharing advantages in cities or of better employer-employee matching in cities, for women or men. 46% of women’s static urban wage premium in the pre-2008 period comes from worse occupational matching at the time of an urban to rural job transition: rather than benefiting from moving to cities, women incur a wage penalty due to occupational transitions when they switch to a rural job, which implies that women are particularly constrained in the type of occupation that they have in rural areas. Women also benefited from occupational matching as well as learning within cities. These two advantages disappear during the financial crisis whilst women continue to suffer the wage penalty when moving to rural jobs. I find that men, contrary to women, are able to benefit from the larger choice of employers in cities, although the positive effect on their yearly wage growth is limited to the year in which they move from a rural job. This is maintained over the three time periods.