Abstract:
This paper examines the presence and magnitude of a wage differential between the public
and private sector of Pakistan. We obtained cross-sectional data, drawn from the Pakistan
Labor Force Survey of 2014-15. Observing the wage differential is a very critical aspect
for the labor market as a whole, as well as the individuals in the workforce. Our theoretical
framework is based on Mincer’s equation of earnings, which has been the basis for work
by many major labor economists for years now. After intense data cleaning, mean
regression decomposition and Oaxaca decomposition were used to get the accurate results
for this research. As in many other countries, the educational levels as well as the average
pay is higher for the public sector workers in Pakistan compared to the workers in the
private sector. Furthermore, the public sector also has a comparatively more compressed
wage distribution, but a smaller gender pay gap. This shows that working in public sector
would be a more suitable option for the females, for example, as they would not have to
face issues such as glass ceiling, low wages etc. as much as they would have to do it in the
private sector. The average gap in log hourly wages between private and public sector is
0.749222. To put simply, the workers in the public sector earn on average, double the
hourly wages of all private sector workers. Needless to say, the jobs in the public sector
are looked upon as more tempting, not just because of these particular statistics, but also
due to various other factors. Fringe benefits are one of those factors as public sector
workers prefer to trade off substantial wage returns for other non-wage benefits linked with
this sector.
