# **1. Introduction**

The incentives and abilities of the personnel employed in government bureaucracies largely determine a state’s capability to effectively implement policies and efficiently achieve the desired outputs in regulation, infrastructure provision, and service delivery _._ Public sector wages strongly influence personnel quality and motivation, and impact the competitiveness of the overall labor market, and fiscal sustainability. Yet in developing country contexts, little is known about the characteristics of public sector workers, and of public sector wages relative to the private sector. This paper attempts to shed light on this topic, utilizing nationally representative survey data that include information on public sector employment and wages from 91 countries.

Governments face important choices regarding the size of the public sector and the compensation of its workers. If public sector workers are paid significantly less than similar workers in the private sector, the resulting difficulty in recruiting and retaining qualified workers will adversely affect the quality of publicly provided goods and services and could contribute to corruption. On the other hand, large wage premiums for public sector workers may encourage youth to queue for public sector jobs, leading to higher rates of youth unemployment. Spending more than necessary on public sector salaries may also crowd out pro‐poor spending, since spending on public sector wages is generally not well‐targeted to the poor. These choices are typically highly charged politically, as public sector workers are an influential, often unionized, group. Better understanding public employment and wages is therefore essential for informing policy choices and managing the likely political fallout.

This paper’s main contributions are to estimate public sector earnings premiums for a much larger set of countries than has been done before, to present evidence on the heterogeneity of premiums across countries and different types of workers, and to consider the robustness of the estimates to the choice of private sector comparators. We find that the public sector generally pays a premium compared to all private sector salaried employees, even after controlling for a small set of observed worker characteristics, but that the size of the premium is sensitive to the choice of the private sector comparator and varies for different types of workers. The earnings premium falls substantially when the public sector is compared to only formal private sector employees; on average, public sector workers in fewer than half of the countries in the sample earn a statistically significant earnings premium when compared to formal private sector workers. Nor are employees likely to pay a penalty for working in the public sector; employees in only 17 percent of the countries in the sample face a statistically significant earnings penalty.

When compared with formal employees, public sector earnings premiums tend to be higher for women, and less educated workers; and higher for employees in relatively lower paid occupations compared to professionals, technical staff, and senior officials. Generally, employees at the lower end of the pay and skill distribution earn larger public sector earnings premiums, while employees at the upper end often face penalties. Cross‐nationally, there is no strong association between country income levels and earnings premiums, a finding that is different from that of other studies that use a more limited set of countries. When public employees are compared with private formal sector employees, public sector earnings premiums in developing countries are comparable to those in high‐ income countries.

This paper adds to the large literature on public‐private wage differentials. Most of the studies to date have been of high‐income countries and find a significant wage premium for public sector workers (Ehrenberg and Schwartz, 1986; Gibson, 2009; Giordano et al 2015; Gregory and Borland, 1999; Moulton 1990; Christofides and Michael, 2013). The analysis confirms that the wage premium also 2