exists for a broad swathe of low‐ and middle‐income countries. Existing studies also reveal heterogeneity of the wage premium across the wage distribution, with higher wage premia for lower skilled workers, a finding that is also confirmed in the data used in this study.

The few studies of wage premiums in developing country contexts find generally similar results. For example, Filmer and Lindauer (2001), and Glinskaya and Lokshin (2005) find a public sector wage premium in Indonesia and India respectively. Tansel (2005) finds public sector wage premiums for both men and women in Turkey. Panizza (2001) finds a public sector premium in Latin America, particularly for female workers. By contrast Coppola and Calvo‐Gonzalez (2011) show that in Peru there is a public sector wage premium in monetary compensation which disappears and instead turns into a public sector wage penalty when bonuses and in‐kind payments are included in the analysis. In their estimates of public sector earnings gaps in the Arab Republic of Egypt, Tansel, Keskin and Ozdemir (2018) address issues of unobservable differences between public sector workers using panel data and individual fixed effects. They find public sector earnings penalties for men but premiums for women. Public sector earnings premiums for women are larger for workers from the lower quantiles of the conditional wage distribution. In contrast to much of the literature, in South Africa Kwanda and Ntuli (2018) find that the public‐private earnings gap starts as a penalty for public sector workers at the bottom of the distribution of earnings, increases to large earnings premiums for public workers up to the 80<sup>th</sup> percentile and then falls slightly thereafter.

The analysis in this paper is most similar to the cross‐national analysis of Finan, Olken, and Pande (2015) who estimate public sector wage differentials for 32 countries and find a public sector wage premium in almost every country, which is highest in low‐income countries and then falls with income per capita. This paper differs from Finan, et al (2015) by including a significantly larger number of countries, including countries from all regions and income classes, and by considering how using alternative private sector comparators affects the estimated public sector premiums.

The results inform the debate about the methodology to correctly compare public and private sector earnings. Our approach differs from the many benchmarking studies done usually by human resource consulting firms that use the “jobs approach.” The jobs approach compares pay for a sample of similar public and private sector jobs and ignores the characteristics of the workers employed in the jobs. This approach necessarily entails limiting the benchmarking to large, formal sector firms, often multinationals, that explicitly classify jobs, and tends to find large public sector wage penalties. One problem with this methodology is that the alternative employment opportunities for public sector workers in developing countries are not limited to the formal private sector and may include self‐ employment and informal activities which pay far less (Alderman et al., 1996, Rama and MacIsaac, 1999). A second problem is that wage premiums are inferred from a relatively small, and not necessarily representative, selection of jobs included in the study.

This study instead follows the more common “worker approach” to estimating public sector premiums, which compares the earnings of public and private sector workers reported in household surveys after controlling for observed predetermined worker characteristics. This approach, however, suffers from significant limitations, including the omission of important determinants of worker productivity such as skills and motivation that are not observed in the data. We therefore consider three alternative estimates of public sector earnings differentials that compare the wages of public sector workers first to all private employees (formal and informal), and then to only private formal employees, and finally to private formal employees in the same occupation. When comparing to all employees there is a public sector wage premium in most countries, but when comparing to private 3