comparators, nor are relevant comparative earnings data easily available, particularly in transitional economies. Finally, there are methodological questions as to how to conduct such comparisons.

Previous World Bank analyses in Indonesia and Vietnam have highlighted the different conclusions that emerge when public sector earnings are compared to those for similar _workers_ in other labor markets as opposed to similar _jobs_ .<sup>18</sup> In both Indonesia and Vietnam, the worker approach, which compares individuals with similar observable characteristics (such as educational attainment and age) by analyzing data from national household surveys, indicated that the earnings of public sector workers were broadly comparable to those of workers in the private sector. In Indonesia, less educated civil servants (the bulk of the civil service) earned a premium over their private sector peers, while more highly educated civil servants earned somewhat less than private sector peers. Looking at the broader public sector, the Vietnam analysis suggested that, on an hourly basis, the median worker in state-owned enterprises earned “within five percent of what he or she could make in the private sector” but—since SOE workers tended to be paid for a higher number of hours—their total earnings exceeded what they would have earned in the private sector.<sup>19</sup> In contrast, surveys that compare public sector salaries with seemingly similar jobs in the private sector tend to conclude that public sector workers are grossly underpaid. Such findings may reflect a bias in the choice of comparators toward multinational firms in a handful of industries whose earnings data may be more readily available than those for lower-profile domestic firms. These international firms, moreover, are likely to pay high salaries in order to attract a small, specialized workforce—making them a poor comparator for the bulk of the civil service. Other complicating factors in jobs-based comparisons include the difficulty of comparing the level of effort actually expended and the level of responsibility and skill required to perform the job. Differences in non-pecuniary benefits such as job stability and social security benefits may also not be adequately captured. Furthermore, comparisons focus predominantly on formal jobs, leaving aside informal activities that may be the more likely alternative for many civil servants in developing countries.<sup>20</sup> In order to triangulate findings with these constraints in mind, the Lao PDR and Armenia studies intentionally incorporated both of these methodologies. Recent household survey data in both Lao PDR and Armenia were used to conduct the worker analysis, albeit with limitations on the statistical significance of findings; Box 2 details the process as conducted in Lao PDR.

# **Box 2: Pay Comparison in Lao PDR—A Worker-based Statistical Analysis**

<mark>The worker approach analyzed data from the 2007-08 Lao Expenditure and Consumption Surveys (LECS), a nationally representative household survey conducted by the government’s Department of Statistics with donor support. LECS gathers information on consumption expenditures as well as other socio-economic information at the level of the individual, household and village, and collects data over a 12-month period in order to control for seasonal variation in a predominantly agrarian economy. LECS includes questions about individuals’ earnings in the preceding month, the industry of employment, and educational attainment; instructing respondents to provide a comprehensive reporting of earnings that includes monetary allowances and bonuses in addition to base salary. This made it possible to calculate and compare the mean earnings of individuals with similar levels</mark>

> 18 Deon Filmer and David Lindauer, “Does Indonesia Have a 'Low Pay' Civil Service? _”_ Policy Research Working Paper 2621 (Washington DC: The World Bank, 2001); Sarah Bales and Martin Rama, “Are Public Sector Workers Underpaid? Appropriate Comparators in a Developing Country,” Policy Research Working Paper  2747 (Washington DC: The World Bank, 2001).

19 Bales and Rama, “Are Public Sector Workers Underpaid?” 20.

20 These factors have been noted in the Indonesia and Vietnam studies, as well as in other analyses.

12