Is the Public Sector Wage Premium Real? Findings from Bangladesh

Abstract

This paper argues that the study of wage gaps between public and private sector employees is sensitive to the selection of the sample. In the context of Bangladesh, Labour Force Surveys is a dominant source of employment-related data, which is disproportionately inflated with large pool of informal sector employees. Since government jobs are highly formal, the studies on wage differentials should select the groups that are as much comparable as possible on the question of formality. However, employing Oaxaca-Blinder mean decomposition method and Melly quantile counterfactual decomposition method, we find a decreasing trend in public sector wage premium as we impose more restrictions to make the sectors fitting formal. The wage differential even disappears in the entire restriction sample, and it is slightly biased towards private in the top quantile only. Therefore, we can conclude that the superiority of the public sector job does not come from wage compensation but non-monetary issues, with a strong implication for labour markets in Bangladesh.