The Greek Public Sector Wage Premium before the Crisis: Size, Selection and Relative Valuation of Characteristics
| Published date | 01 September 2014 |
| Date | 01 September 2014 |
| DOI | http://doi.org/10.1111/bjir.12023 |
The Greek Public Sector Wage Premium
before the Crisis: Size, Selection and
Relative Valuation of Characteristics
Rebekka Christopoulou and Vassilis Monastiriotis
Abstract
We examine the Greek public–private wage differential before the debt crisis to
evaluate the prospective impact of the recent public sector pay cuts. We find a
large public premium which persists after controlling for individual and job
characteristics. For men, much of this is accounted for by self-selection into the
sector that rewards better their characteristics, while for women it is largely
driven by sectoral differences in returns. We attribute these effects to more
egalitarian pay structures in the public sector and to demand problems in the
private sector. The recent policy measures only partially change this situation,
as wage deflation extends to the private sector, preserving public premia for the
low paid.
1. Introduction
The issue of public sector premia and public–private differences in wage
structures has recently gained prominence in Greece, albeit in a rather unfor-
tunate conjuncture. The debt crisis has necessitated severe pay cuts in the
Greek public sector, in the first instance (measures taken in 2010) to the tune
of 12 per cent (NBG 2010), but more recently rising up to 30 per cent for
specific worker categories — following the introduction of a universal public
sector pay scale (Law 4024/2011). Although the need for curbing current
public expenditure in the pursuit of fiscal consolidation is indisputable, it is
important to stress that very little is known about the public and private pay
structures in the country. Thus, it is not clear to what extent public sector
wage cuts can be justified on grounds of economic efficiency (in the sense of
achieving parity between wages and productivity) — besides their justifica-
tion on the basis of (fiscal) need.
Rebekka Christopoulou is at the Department of Human Sciences, The Ohio State University.
Vassilis Monastiriotis is at the London School of Economics, Hellenic Observatory, European
Institute.
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British Journal of Industrial Relations doi: 10.1111/bjir.12023
52:3 September 2014 0007–1080 pp. 579–602
© Blackwell Publishing Ltd/London School of Economics 2013. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
The existence of a sizeable public sector wage premium in Greece is of
course well known. It was reported to range between 25 and 40 per cent in the
1970s and 1980s (Kioulafas et al. 1991), while estimates for the 1990s are
nearer 50 per cent (Papapetrou 2006a) — although the results of these studies
are not directly comparable due to their differences in data sources and
measurement. However, systematic research on the topic is lacking, while all
available evidence comes from studies with particularly small sample sizes
and potentially important measurement problems. For example, Kioulafas
et al. (1991) used unofficial data collected by the authors for the years 1975,
1981, 1982 and 1985 with a sample size of only about 650 individuals per
wave. Kanellopoulos (1997) used the 1987 Greek Budget Household Survey,
which covered 3600 individuals. Both studies analysed monthly wages
without controlling for hours: given that working hours are lower in the
public sector, this may have caused them to underestimate the public wage
premium. Two more recent studies (Papapetrou 2006a, 2006b), which did
include controls for hours, measured wages in the form of annual earnings
from employment, thus introducing potential biases arising from differences
across sectors in non-employment spells for different individuals — and
relied on rather small sample sizes (around 2,000 individuals from the Greek
section of the European Community Household Panel (ECHP)).
Besides these issues, this evidence is now quite dated, coming from a period
with markedly different employment relations and before Greece’s accession
to European Economic and Monetary Union (EMU) in 2001. Since the late
1990s, Greece has followed an extensive privatization programme and has
taken continuous steps towards labour market deregulation (Ioannou 2000;
Monastiriotis and Pissarides 2012). Coupled with pressures applied to its
labour market from membership in the Eurozone (Featherstone 2003), these
developments ought to have altered significantly the valuation of skills and the
appropriation of rents in the private and public sectors. By implication, they
are also likely to have altered the relative and absolute wage premia there —
rendering the available evidence less relevant or suitable for policy analysis.
In this article, we seek to fill these gaps by examining the size and nature of
public–private wage differentials in Greece using data from the 2005 spring
wave of the Greek Labour Force Survey (LFS). We focus on 2005 because by
that time, Greece had largely completed its transition into the post-EMU era,
while the first signs of the global economic crisis had not yet been manifested.
We examine the differences in average wages between the private and public
sectors, as well as in the structure of returns to specific employee and job
characteristics, such as education, experience, marital status, type of contract
and others. Given the perceived importance of self-selection in the determi-
nation of sector of employment (Bender 1998), we perform endogenous
switching regressions that control for sector selection and discuss the differ-
ences in the obtained results. Controlling for selection allows us to estimate
the differences in the valuation of individual characteristics as if labour
supplies in the two sectors were identical (i.e. as if the compositional mix of
the sectors was independent of the valuations of observable or unobservable
580 British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2013.
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