Examining the Wage Differentials in Public and Private Sector of Pakistan

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.