January 2004

IZA DP No. 992: Public-Private Sector Wage Differentials in Scotland: An Endogenous Switching Model

published as 'Public-private sector pay differentials in a devolved Scotland' in: Journal of Applied Economics, 2006, 9, 295-323

The public-private sector wage gap in Scotland in 2000 is analysed using the extension sample of the British Household Panel Survey (BHPS). Employing an endogenous switching model, and testing for double sample selection from the participation decision and sector choice, the unadjusted wage gap is shown to be 10 per cent for males and 24 per cent for females. For males this is mainly due to differences in productive characteristics and selectivity. For females the picture is more ambiguous. Findings also suggest that there exists a substantial wage premium for male private sector employees. While there is no evidence of a sample selection bias for females, the sector choice of males is systematically correlated with unobservables. Furthermore, the structural switching regression indicates that expected wage differentials between sectors are an important driving force for sectoral assignment.