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Principal investigator: Eduarda Miller de Figueiredo
Article title: WAGE DISTRIBUTION AND THE PUBLIC-PRIVATE GAP IN BRAZIL
Article authors: Walter Belluzzo, Francisco Anuatti-Neto and Elaine T. Pazello
Location of the intervention: Brazil
Sample size: 110.433 observations
Sector: Labor market
Type of intervention: Interview about perceptions of the political system.
Primary variable of interest: Salary
Evaluation method: Other - Quantile Regression
Brazilian society in the year of the study perceived public sector salaries as lower than those in the private sector, a perception accepted by public employees because the expectation of retiring with full benefits compensated for this difference. According to Foguel et al (2000), considering the characteristics of each sector, the salary differential between sectors is reduced, but remains significantly favorable to the public sector. 70% of the total salary differential corresponds to the level of education.
Given this, the research aimed to analyze the conditional distribution of wages, reconciling the perception of Brazilian society that private sector wages are higher than public sector wages.
Evaluation Context
The research used data from the National Household Sample Survey (PNAD) to observe the wage differential between the public and private sectors. The authors presented a comparison of data from 1995 to 2001 in the article.
The data from the two years already mentioned showed an increase in older workers in the public sector, meaning a more experienced workforce. There was also an educational advancement among private sector employees, with 35,5% of workers having 12 or more years of schooling in the public sector and 10,8% in the private sector.
It was also observed that there was an increase in the wage differential between 1995 and 2001, in which the gross wage had a differential of 0.28 in 1995 and increased to 0.40 in 2001, and the standardized wage...[1] It changed from 0.45 to 0.57 between the years.
Methodology Details
The study used the PNAD database, including all individuals aged 16 or older residing in urban areas of the country who were employed at the time of the interview. Among those employed, only those employed in non-agricultural, civil activities with working hours between 20 and 70 hours per week were selected. This resulted in a sample of 110.433 observations, of which 17.028 (15,42%) are public sector workers and 93.405 (84,58%) are private sector workers.
To measure the average wage differential between sectors, the authors followed the literature by using the conditional mean model with the logarithm of the wage, a vector of individual characteristics, and a binary variable to indicate whether it is in the public sector or not. However, this approach by Foguel et al (2000) imposes the hypothesis that the variables only affect the position of the wage distribution and not the dispersion or shape.
In view of this, the article discussed here sought to use a different approach, aiming to enable covariates to affect the position, dispersion, and shape of the wage distribution. To this end, quantile regression methods are used, where the basic model provides a direct measurement of the wage differential, with the effect of the covariates fixed for each quantile. While in the general model, the measurement of the wage differential occurs through a counterfactual analysis, following the work of Foguel et al (2000).
Furthermore, the study estimated independent models for each region of Brazil: North, Northeast, Central-West, Southeast, and South. Each model has a sequence of quantiles between 0.05 and 0.95, with intervals of 0.05, totaling 38 models per region.
Results
The results for the standardized wage differential between the private and public sectors at the municipal level demonstrate that the differential favors public employees and that this occurs in all regions. However, this only occurs in the lower tail of the wage distribution; that is, as wages increase, the advantage decreases and may even become negative. Thus, it is suggested that individuals with low wages have a greater advantage over the private sector. Regressions for gross wages at the municipal level show that the public sector advantage disappears across the entire wage distribution, except for the North and Northeast regions.
At the state level, the results continue to demonstrate an advantage of the public sector over the private sector in virtually the entire salary distribution. However, when observing the results for the gross salary of the state public sector, a leftward shift of the curves was noted, although the shift is of a much smaller magnitude compared to the municipal public sector.
Regarding the federal level, the results demonstrate that the differential is always significantly positive and greater than those observed at the municipal and state levels. However, it was noted that the wage differential tends to be smaller for the upper tail of the distribution, except for the South region.
The counterfactual analysis was conducted only at the national level, with no separate results for each region of Brazil.
Figure 1: Marginal vs. Counterfactual Densities – Standardized vs. Gross
Figure 2: Differentials between marginal and counterfactual distribution
The counterfactual analysis was conducted only at the national level, with no separate results for each region of Brazil. The results demonstrated that when moving from standardized to gross wages, the counterfactual densities shift the mass slightly to the right, while the marginal densities shift the mass slightly to the left. This suggests a reduction in the level of differentials; however, the same pattern is maintained. quantis Regarding the distribution of wages.
The results obtained, therefore, confirm that the perception of Brazilian society that public sector salaries are lower than those in the private sector is valid for the highest salaries in the state and municipal spheres, especially when observing gross salaries without standardization of working hours. However, for federal public employees, the differences are positive for all quantiles of the salary distribution, both gross and standardized. A possible explanation provided by the authors for this perception of salary differentiation between sectors is that, from a political economy perspective, the groups with the highest salaries also have the greatest capacity for expression and influence over public opinion.
Lessons in Public Policy
The common belief that public sector salaries are lower than those of private sector employees is only valid at the state and municipal levels. This perception is refuted when it comes to federal public sector salaries. This may be a consequence of the fact that these employees have greater influence over public opinion, making it possible to encourage the common belief that public sector salaries are lower than private sector salaries.
Reference
BELLUZZO, Walter; ANUATTI-NETO, Francisco; PAZELLO, Elaine T. Wage distribution and the public-private differential in Brazil. Brazilian Journal of Economics, v. 59, n. 4, p. 511-533, 2005.
[1] Standard monthly salary for a 40-hour work week.
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