Mind the Gap: the size and costs of pay differentials between the public and private sectors in the UK

a research paper by Matthew Oakley published in the Policy Exchange (September 2012)

Abstract

This paper considers how public and private wages differ in local areas. It extends the UK literature in two key ways.

First it uses the Special License version of the Annual Population Survey to allow wage differentials to be identified using quantile regression estimation at a Local Authority level with the most up to date data available. This approach demonstrates a complex picture of mismatches between the wages one might expect individuals to receive based on their characteristics and types of job, and the public sector wages they receive: pay differentials vary dramatically both across and within regions and across the pay distribution.

Secondly, this paper puts forward tentative estimates of the overall value of the pay differentials in order to inform discussion over how much it would cost or save, should differentials be reduced, ceteris paribus, over time. These results are also split by region. Total costs are found to be sensitive to whether or not other factors, such as pension entitlements, are accounted for.

Full text (PDF 66pp)

JEL classifications: J3, J7

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