15 Impact on **wages** Determining the impact of the public sector on wages in an economy requires micro data on wages by the type of employment and skill level of workers.

Public/private differentials. The data on public-private pay differentials are difficult to interpret."<sup>0</sup> Heller and Tait find that the public sector in developing countries underpaid in the aggregate in the late 1970s/early 1980s. In OECD countries, the shares of general government wages in total nonagricultural wages and of government employment in total employment were similar (21 percent and 19 percent, respectively), indicating that the average wage in the public and private sectors was roughly equal. In developing countries, the ratios were 20 percent of wages and 26 percent of employment, indicating that civil servants, on - average, are underpaid relative to their private sector count arts (Heller and Tait 1984:12). The gap was largest in Africa and smallest in Latin America (8 and 4 percentage points, respectively). These numbers were not, and probably could not be, weighted by skill categories, so comparisons of average wages are misleading. It is easy to imagine a country where the percentage of unskilled labor in the public sector is much larger than in the private sector. Thus, because skill differentials could be both cause and consequence of cross-sectoral pay differentials, these latter do not necessarily indicate public-private pay differentials for similar workers.

van der Gaag and others (1989:82-85) found public wages to be well below private wages in CMte d'Ivoire and Peru in 1985-86. They argue that traditional wage equations that compare sectors assume incorrectly that employees are randomly distributed between the public and private sectors. If, on the contrary, employees are distributed according to a selection process determined by the preferences of employers and employees, wage equation estimates--which tend to show that public sector workers are better paid--are biased. Wage equations estimated with more sophisticated techniques show that although the average wage in the public sector was higher than in the private sector in both countries, a worker with the average productive characteristics of his or her sector (age, sex, education, marital status, experience), will be offered a substantially lower wage in the public sector than in the private sector. Those who select public sector employment have preferences, for example, for nonpecuniary benefits and intangibles like job security, that are not measured by the standard human capital variables.

The International Labor Office (1990:17) compared rates of pay in the public and private sectors across three occupations deemed to be comparable--computer programmer, office clerk, and stenographer-typist-and found no systematic cross-country differences even though pay differentials within countries for the same occupation could be large (up to 400 percent in isolated cases). A second ILO study (Robinson 1990) also did not find evidence for the contention that the public sector, particularly in Africa, pays more for unskilled workers. On the contrary, the private sector paid more for unskilled labor in six African countries in recent years (ILO 1990:18). But, the ILO did fnd broad evidence of a pay differential in favor of the private sector for higher-level occupations in the early 1980s in Africa, Asia and Latin America.