Principal investigator: Angelo Cruz do Nascimento Varella
Article title: Public-Private Wage Differential and Per Capita Income Inequality in Brazil
Article authors: Pedro HGF Souza and Marcelo Medeiros
Location of the intervention: Brazil
Sample size: 163.084 Brazilian workers
Sector: Labor market
Type of Intervention: Effects of the difference between public and private salaries
Main Variable of Interest: Income inequality
Evaluation method: Others
Policy Problem
Social inequality is a considerable problem, especially for developing countries like Brazil. Besides being an economic obstacle, inequality generates a strong negative social impact, perpetuating poverty and its undesirable consequences. As a result, social inequality is a topic widely studied around the world.
A very important way to measure inequality in a country is to compare the difference between the salaries of those who work in the public sector and the salaries of those who work in the private sector. This is because this difference is a great tool for measuring whether a country's government is improving or worsening the condition of income inequality in its nation.
Implementation and Evaluation Context
The wage gap between the public and private sectors is evidence that a country's institutions, in this case Brazil, influence income inequality. In Brazil, it is possible to see that the income level in the public sector is higher than that observed in the private sector. Therefore, it is possible to assert that the Brazilian government, to a certain extent, increases social inequality in the country.
Furthermore, it is possible to argue that this wage gap also influences the labor supply, since it generates a preference in society for public service, compared to the same activities in the private sector. This leads to an accumulation of qualified individuals in the public sector, which ultimately affects the national market in various ways and at different levels.
It is important to highlight that public and private sector workers also differ in their roles, even when performing the same activities. In Brazil, the public service offers special characteristics, such as hiring practices, job security, and the absence of a profit motive, which make this type of work better paid in the country.
In Brazil, this reality of wage inequality can be observed from the 1990s onwards and is more pronounced for workers with low levels of education and for those working for the federal government and the judiciary.
Policy Details
In turn, there are several other sets of factors that determine how much a public employee receives. These are conditions stemming from the market, political actions, and even the various peculiarities of this type of service, which is very different from what occurs in the private sector. These factors can be divided into two effects, called composition and segmentation.
The composition effect refers to the set of factors that cause public sector workers to have higher average levels of education, resulting in better working conditions for these individuals. The segmentation effect, on the other hand, relates to the set of factors and special characteristics that allow for higher salaries in the public sector.
Methodology Details
With the aim of discovering how the wage gap between the public and private sectors impacts income inequality in Brazil, researchers used data from the National Household Sample Survey (PNAD), conducted in 2009 by the Brazilian Institute of Geography and Statistics (IBGE). In total, the researchers collected data on income, working conditions, and other socioeconomic characteristics and information from more than 163 people throughout Brazil.
After data collection, the researchers divide the mathematical model calculations into two parts. First, the data are used to measure and quantify the difference between public and private sector salaries, comparing jobs with similar characteristics. From this econometric model, the results are incorporated into a second model, which compares how these results impact the coefficients of the Gini Index, an international indicator for income concentration and inequality, also used in Brazil. In this way, calculating the difference between salaries in the public and private sectors makes it possible to define the impact of this difference on social income inequality.
Results
Combined, public sector workers account for 10% of the workforce in Brazil, while individuals employed by the private sector total 40% of the national total. In all calculations performed, the salaries of individuals working in the public sector exceed those of the same positions in the private sector by between 15% and 21%, being approximately 17% higher. In other words, on average, public sector workers receive up to one-fifth more in remuneration.
It is also important to highlight that this increase is greater for higher positions, meaning the salary difference is larger for better jobs with higher salaries, further contributing to national income inequality.
Another key point is that the compositional effects of the public sector outweigh the segmentation effects observed. In other words, the fact that public servants tend to be more qualified than private employees has a greater impact on social inequality than salaries themselves.
Lessons in Public Policy
Social inequality is a problem of great importance for countries like Brazil. The ills generated by poverty and income concentration cause negative repercussions in all strata of society, so combating inequality is a fundamental point in the healthy development of the country.
Regarding the wage gap between the public and private sectors, it is important to consider the compositional effect observed in Brazil, which considerably worsens national income inequality. It is important to consider that the public sector concentrates a large portion of the most skilled workforce, and that increasing public sector salaries tends to exacerbate the undesirable situation of social inequality.
Reference
SOUZA, Pedro HGF; MEDEIROS, Marcelo. Public-private wage differential and per capita income inequality in Brazil. Estudos Econômicos (São Paulo), v. 43, p. 05-28, 2013.
