Government wage differentials: a sample selection approach

Abstract

This paper uses the econometrics of sample selection to estimate the net wage differential between workers in the public and private sectors of the United States. The results indicate workers self select by systematically locating in the sector which offers them the higher expected wage. As a consequence, previous research based on the assumption of random allocation between sectors is subject to serious specification bias. The present estimation indicates government workers are slightly underpaid taking into account their observed characteristics and the selection process.