September 2013

IZA DP No. 7644: Job Satisfaction and Self-Selection into the Public or Private Sector: Evidence from a Natural Experiment

Are public sector jobs better than private sector jobs? To answer this question, this paper investigates observed differences in job satisfaction between public- and private-sector workers and disentangles the effect of worker sorting from the one caused by sector-specific job characteristics. A natural experiment – the massive privatization process in post-Soviet countries – allows correcting potential self-selection bias. Industry-specific privatization probabilities are assigned to workers based on unique individual-level survey information regarding pre-determined Soviet jobs during the 1980s. The results reveal a causal public-sector satisfaction premium and a negative selection of individuals into the public sector. Part of the public-private satisfaction gap can be explained by the different availability of fringe benefits in the two sectors.