Public or Private Sector Wage Leadership? An International Perspective*

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.     

Central bank forecasts and private expectations: An empirical assessment from three emerging economies

As part of their monetary policy strategy, many central banks are attempting to manage private sector expectations about key macroeconomic variables. In this article, we investigate whether forecasts provided by central banks in three inflation targeting emerging economies (Brazil, Mexico, and Poland) affect the expectations of private forecasters. In particular, we analyze whether the disagreement between the central bank and private sector forecasts applies to explain changes in private sector expectations regarding inflation and economic growth. The findings show that while central bank forecasts are higher than those made by private sector forecasters, the result is an update upwards of private forecasts and that this effect is stronger for GDP growth forecasts than for inflation forecasts.     

Regulating Providers' Reimbursement in a Mixed Market for Health Care

Hospitals can be reimbursed for their costs in many ways. Several authors have investigated the effects of these reimbursement rules on physician incentives and, therefore, on the quantity of services provided to patients. A form of (linear) cost-sharing tends to emerge as the socially efficient reimbursement policy. We present a model of hospital reimbursement, based on Ellis and McGuire (1986). The new feature is that physicians can supply private health care services to a patient, as well as public sector ones; a common institutional arrangement in many health care systems. We investigate the optimal public sector reimbursement rule given that private market incentives must now be taken into account. Public sector cost-sharing remains socially efficient, but it is generally non-linear: the precise details depend on whether public and private services are substitutes or complements and on the degree of social efficiency achieved in the private sector. Other reimbursement schemes exhibit optimality properties not present in Ellis and McGuire's work.     

Effects of Public Infrastructure on Cost Structure and Productivity in the Private Sector

This paper examines the effects of public infrastructure on the cost structure and productivity in the private sector in Australia. Translog cost functions incorporating public capital infrastructure are estimated for the aggregate private sector as well as for seven broad industry groups using annual time series data for 1968/69–1995/96. The effects of public infrastructure on productivity are measured in terms of both cost-saving and output-augmenting measures. The empirical results suggest that public infrastructure has a positive and significant impact on productivity in private sector industries. Public capital serves as a substitute for both private capital and labour. The rates of return to public capital are significant and vary over the sample period.     

THE PUBLIC SECTOR PAY GAP IN FRANCE, GREAT BRITAIN AND ITALY

We investigate public–private pay determination using French, British and Italian microdata. While traditional methods focus on parametric methods to estimate the public sector pay gap, in this paper, we use both non-parametric (kernel) and quantile regression methods to analyze the distribution of wages across sectors. We show that the public–private (hourly) wage differential is sensitive to the choice of quantile and that the pattern of premia varies with both gender and skill. In all countries the public sector is found to pay more to low skilled workers with respect to the private sector, whilst the reverse is true for high skilled workers. When comparing results across countries, we find that where pay formation is more regulated (i.e. as in France and Italy) the public sector pay gap is smaller; whilst where market factors play a larger role in pay determination (i.e. as in Great Britain) the public sector pay gap is larger—particularly in the lower part of the wage distribution—and females are much better off in the public sector as compared to the private sector.     

Inflation and the Impact of Budgets

This article focuses on the adjustment of budget figures for the effect of inflation on the value of government debt. It asks whether such adjustment improves their performance as a measure of 'fiscal impact'. If inflation significantly influences the impact of budgets on the real economy, policy-makers may make inappropriate fiscal policy decisions if they are guided by unadjusted budget figures. The article argues that if agents perceive holdings of government debt as part of their wealth, changes in the real value of debt will have an effect on consumption behaviour. Therefore to assess the impact of fiscal policy on consumption it may be necessary to adjust budget figures so that they accurately indicate changes in the real value of debt held by the private sector. This article adjusts a series of structural public sector borrowing requirements (PSBR) for the effect of inflation on the real value of government debt held by the private sector. An empirical analysis concludes that the inflation-adjusted budget series provides a superior measure of fiscal impact on consumption, and hence the real economy.     

Wage Differentials between the State and Private Sectors in Moscow

In this study the 1997 Russian Labor Force Survey is used to investigate wage differentials between the state and the private sector in the city of Moscow. Our analysis demonstrates that substantial differences exist between private and state sector wages. We estimate the gap between private and state sector wages to be 14.3 percent for men and 18.3 percent for women. We also find gender differences in wages. Men in the private sector earn on average 23.7 percent more than women. The gender wage gap in the state sector is even higher at 32.5 percent. In the state sector, wages for both men and women increase as years of tenure increase. But in the private sector this is only true for men; women earn no return to tenure. The probability of employment in the private sector decreases with age and tenure.     

The role of the private sector under insecure property rights

It is well known that the so-called voracity effect can be observed in an economy with a weak property rights system. Voracious behavior is regarded as one of the excess uses of the common assets. In this paper, we seek to examine voracious behavior from a different perspective by introducing a new direction of capital flow: from the private sector to the common sector. A government mandates that all competing interest groups invest their private capital in the common sector to mitigate the effects of excess use of the commons. In this situation, we study how this capital flow affects the voracious behavior of the groups and the growth rate of the economy. The main findings are that, while there is no standard voracity effect, an increase in the contribution of the private sector into the common sector causes more voracious behavior and thus reduces economic growth. This suggests that policies designed to preserve the commons can lead to a harmful effect on the economy.     

Is the Swedish central government a wage leader?

Is the Swedish central government a wage leader? This question is studied empirically in a vector error-correction model using a unique, high quality data set. It is first shown that salaries of white-collar workers in the private sector and central government are cointegrated. It is then found that private sector salaries are weakly exogenous to the system of equations. This means that the private sector is the wage leader in the long-run model. It is also found that changes in central government salaries do not Granger cause changes in private sector salaries. Together, these findings clearly demonstrate that the central government is not placing undue pressure on salaries in the private sector. The central government is not acting as a wage leader.     

Insider-outsider forces in wage and employment determination: The case of Sweden

This paper applies a statistical approach used by Andersen & Hylleberg (1993) in their study of insider-outsider effects in wage-employment determination in the Danish manufacturing sector, to analyse insider-outsider effects in the Swedish private sector. Focusing on the univariate and multivariate trend properties of the data, a bivariate wage-employment error correction model is used as an explicit test-bed for the theoretical predictions of adjustments to anticipated and unanticipated shocks. According to the Blanchard & Summers (1986) insider-outsider model, the former changes are absorbed entirely by wages while the latter changes are reflected fully in employment. As in the case of analysis on Danish manufacturing data, it is found that the evidence based on data related to the Swedish private sector also fails to accept the Blanchard & Summers insider-outsider model in its unqualified version. Nonetheless several important traits of insider-outsider mechanisms seem to be in accordance with the observed evolution of the data.     

A Quantile Regression Analysis of Wages in Panama

Differences in the effects of worker characteristics on wages in Panama at different points of the conditional wage distribution are investigated. Public sector employment increases wages relatively more at lower quantiles. Within the public sector, employment in that sector increases wages of the median worker and reduces wage inequality. Presence of a labor union increases relatively more private sector wages at lower quantiles. Unions reduce wage inequality within the union private sector and increase average wages within that sector. In the public sector, the presence of a labor union increases wages of men at lower quantiles at a lower rate than in the private sector. Self-employment decreases wages at lower quantiles and increases wages at higher quantiles. Urban location affects wages in a U-shaped pattern as one moves from lower to higher quantiles. Rates of return to experience are higher for men at higher quantiles. Experience increases men's wage inequality.     

Segregation and gender wage gaps in the private and the public sectors: an analysis of Danish linked employer–employee data, 2002–2012

This paper examines the relation between segregation and the gender wage gap in the public and the private sectors in Denmark from 2002 to 2012. The analysis shows that male–female differences in the share of females in occupations, industries, establishments and job cells (occupations within establishments) constitute 46 % of the raw gender wage gap in the private sector, while segregation in the public sector accounts for as much as 63 %. Segregation thus plays a substantially more important role in accounting for the gender wage gap in the public sector than in the private sector. While the importance of segregation for wage formation decreased substantially in the public sector over time, it only decreased slightly in the private sector. Although the remaining gender wage gap, after controlling for segregation, is close to zero in the public sector, a substantial within-job cell differential remains after controlling for segregation in the private sector.     

Job creation,job destruction,labour mobility and wages in Poland, 1988–19981

Longitudinal data from interviews with Poles of working age conducted in 1988, 1993 and 1998 combined with longitudinal firm‐level data present a detailed view of the transition from a state‐dominated to a market economy. Job losses in state firms and job creation in new private firms are the dominant employment changes, other than retirements from the labour force. In the Polish case, a significant proportion of this movement over the 1988–1998 period involves a spell of unemployment or exit from the labour force before obtaining a private sector job. This results in considerable job competition between workers leaving the state sector and those who are out of the labour force or unemployed. Income differences between the state sector and the de novo sector appear to have little association with mobility. These results suggest that movement to the new private sector is more likely to be the result of job loss than the result of people looking for better, higher paying jobs. Self‐employment plays an important role in the development of the private sector. People working on their own account have higher incomes than wageworkers and are likely to become owners employing additional workers. Incomes are higher in regions with high rates of job creation and depressed in regions with job destruction.     

The influence of ownership on the cost of bus service provision in Switzerland - an empirical illustration

In deregulated transport markets, a firm's ownership status and management system represent an important issue. Property right theory suggests that productivity and performance are higher in the private than in the public sector. In Switzerland, providers of bus transportation are traditionally corporations, though a large part of their equity shares are still held by the public sector (federal government, cantons, municipalities). This paper examines the potential impact of ownership on the cost of bus service provision for a sample of private, public and mixed bus companies in Switzerland. The estimation of a translog cost model has been considered for 34 bus transit companies observed over 5 years (1991–1995). The results only partially confirm that if the private sector holds shares in the company's capital, efficiency is enhanced. In addition, measures of economies of scale and density are derived and discussed within the actual public transport policy.     

Growth of factor productivity in Turkish manufacturing industries

This paper presents estimates of rates of total factor productivity (TFP) growth for two-digit manufacturing industries in Turkey over the period 1963 to 1976. Estimates are presented separately for the public and private enterprises in each industry. It is shown that periods of slower productivity growth coincided with periods of a more stringent traderegime. It is also shown that, despite the fact that the rate of growth of TFP was about the same in the public and private sectors, absolute levels of inputs in the public sector enterprises are much higher than in their private sector counterparts.     

Employment and Wages in the Private and Local Government Sectors in a Centralized Fiscal System

This paper discusses the interaction between the local government and private sector in an institutional context consistent with a centralized fiscal system. Under decentralized wage setting in the private sector, the effects of shocks in the two sectors depend on whether private and local public goods are substitutes or complements in the union utility function. Higher wage markup in the local government sector unambiguously decreases government output while the effect on private sector employment is ambiguous. Higher income taxes have ambiguous effects on local government output. Shocks in the private sector can be reinforced through feedback effects from the local government sector. A shift from decentralized to centralized wage setting in the private sector reduces wages and increases employment in both sectors.     

CSD water partnerships: Privatization, participation and legitimacy

Public-private partnerships have been presented as an opportunity to improve the input and output legitimacy of global environmental governance, and they were endorsed by intergovernmental agreement at the Johannesburg Summit in 2002. However, their potential to contribute substantially to these aims has also been questioned. For partnerships working in the water sector, the implications of private sector participation for legitimate water governance have been disputed, for example regarding whether public-private partnerships can provide water that is affordable and accessible to all, and whether they provide opportunities for local stakeholder participation. In this article, these discussions are examined with respect to several examples of public-private partnerships registered with the UN Commission on Sustainable Development. The analysis indicates that these partnerships partially address these criticisms, but also have their own shortcomings.     

Business fixed investment of Chinese manufacturing firms in the post-financial crisis era

ABSTRACT

I document the investment decline of Chinese manufacturing firms after 2011, following the end of the 4 trillion fiscal stimulus program and expansionary monetary policies for combating the 2008–2009 financial crisis. I employ a difference-in-difference strategy to show that state-owned enterprises (SOEs) acted as investment stabilizers. In the post-crisis era, SOEs’ investment rates fell less compared to their private counterparts. Moreover, they had a smaller chance of exiting the market than private firms. In the face of monetary tightening, SOEs enjoyed a much smaller increase in the interest rates of their long-term debts. Although these may fuel the growth of the SOE sector relative to the private sector, and thus raised concerns for capital misallocation, the adverse effect on reallocation was dampened by shadow banking.     

DEFINED CONTRIBUTION PLANS, DEFINED BENEFIT PLANS, AND THE ACCUMULATION OF RETIREMENT WEALTH

The private pension structure in the United States, once dominated by defined benefit (DB) plans, is currently divided between defined contribution (DC) and DB plans. Wealth accumulation in DC plans depends on a participant's contribution behavior and on financial market returns, while accumulation in DB plans is sensitive to a participant's labor market experience and to plan parameters. This paper simulates the distribution of retirement wealth under representative DB and DC plans. It uses data from the Health and Retirement Study (HRS) to explore how asset returns, earnings histories, and retirement plan characteristics contribute to the variation in retirement wealth outcomes. We simulate DC plan accumulation by randomly assigning individuals a share of wages that they and their employer contribute to the plan. We consider several possible asset allocation strategies, with asset returns drawn from the historical return distribution. Our DB plan simulations draw earnings histories from the HRS, and randomly assign each individual a pension plan drawn from a sample of large private and public defined benefit plans. The simulations yield distributions of both DC and DB wealth at retirement. Average retirement wealth accruals under current DC plans exceed average accruals under private sector DB plans, although DC plans are also more likely to generate very low retirement wealth outcomes. The comparison of current DC plans with more generous public sector DB plans is less definitive, because public sector DB plans are more generous on average than their private sector DB counterparts.     

Private and public sector regulation of competitively tendered contracts

This paper addresses two contractual issues using a sample of competitively tendered contracts for cleaning services. First, the paper considers the characteristics that distinguish private from public sector organisations in their methods of selection and regulation of contractors. Secondly, the paper examines the perceived effectiveness of such regulatory mechanisms in terms of compliance with contract specifications and overall assessment of quality. Econometric analysis reveals that private sector organisations differ from their public sector counterparts in the selection procedures of contractors. Moreover, significant differences emerge in the apparent efficacy of a range of regulatory instruments in assuring contractual performance.We are grateful to Jörg Finsinger and participants at the Industrial Organization Conference in Vienna (1992) for helpful comments. The usual disclaimer applies.