Working Paper: NBER ID: w3667
Authors: Lawrence F. Katz; Alan B. Krueger
Abstract: The wage structure in the U.S. public sector responded sluggishly to substantial changes in private sector wages during the 1970s and 1980s. Despite a large expansion in the college/high school wage differential during the 1980s in the private sector, the public sector college wage premium remained fairly stable. Although wage differentials by skill, in the public sector were fairly unresponsive to changes in the private sector, overall pay levels for state and local government workers were quite sensitive to local labor market conditions. But federal government regional pay levels appear unaffected by local economic conditions. Several possible explanations are considered to account for the rigidity of the government internal wage structure, including employer size, unionization, and nonprofit status. None of these factors adequately explains the pay rigidity we observe in the government.
Keywords: Wages; Public Sector; Private Sector; Labor Market
JEL Codes: J31; J45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in private sector wage differentials (J31) | public sector wage policies (J38) |
| local labor market conditions (J29) | overall pay levels for state and local government workers (H70) |
| local economic conditions (R11) | federal government wages (J38) |
| employer size, unionization, and nonprofit status (L39) | wage structure rigidity (J31) |
| institutional factors (D02) | stability of public sector wages (J45) |