Public-Private Wage Differentials: Evidence from Pakistan

Abstract

Compensation structures of public sector employees have significant implications for public service delivery and employment. If public sector employees get relatively lower pay, then the government can face difficulties in retaining trained and qualified workers. However, if public sector employees receive higher salaries it is possible that younger people may prefer to join the public sector. If this is accompanied by limited job absorption capacity in the public sector, it is possible for there to be substantial unemployment. This study has analysed the wage differentials by using the data from the Pakistan Labour Force Survey 2020-21. Blinder-Oaxaca decomposition suggests that at the executive level, public sector workers are facing wage penalties, while other occupational groups in the public sector are enjoying wage premiums. The highest wage premiums are for clerical staff followed by unskilled workers, services, technician, professionals and agricultural workers.