What keeps public sector workers in low-paid jobs? The role of self-selection and non-cognitive skills in explaining the public-private wage gap

This paper examines whether non‐cognitive skills (personality traits and risk attitudes) influence self‐selection into employment and the choice between the public and private sectors and, if so, how they relate to wages in each sector. The methodology combines multinomial logistic regression to model the patterns of selection with an Oaxaca–Blinder‐type decomposition of the intersectoral wage gap. I find that personality traits have a substantial effect on selection into employment and the preferences towards the private sector. They have a significant, albeit small, effect on wages in both sectors. The magnitude of these effects is the same across sectors and non‐cognitive skills do not contribute to the intersectoral wage gap at the mean. At the same time, accounting for the endogeneity of sectoral attainment eliminates the intersectoral gap: in 2016, the unexplained conditional wage gap can be completely attributed to self‐selection.