WAGES AND INCENTIVES IN THE PORTUGUESE PUBLIC SECTOR

Abstract

micro datasets for private and public employees, collected in 1996, 1999 and 2005. This time span, though relatively short, allows us to go beyond a static analysis and pinpoint some features that appear to be changing in recent years. While the literature comparing different aspects of the private and public pay systems is extensive, there are not many papers addressing this type of issues for Portugal. A first analysis of this kind was made by Portugal and Centeno (2001) using survey data. Centeno and Pereira (2005) studied the determination of wages in general government based on the same dataset for 1999 we use, but without the benchmark provided by the private sector. This paper takes the analysis further, exploring the datasets for the two sectors in several dimensions. The article deals with two main issues. The first one concerns incentives linked to the wage level, which are investigated mainly by looking at the premium associated with working in the public sector. This premium is calculated by netting out the effect of the differences in observed characteristics of workers from the raw wage gap between the two sectors. It thus measures the inequality in the returns to those characteristics. We start by focusing on the overall premium and how it has changed for specific groups of workers, namely, men and women and workers in more and less developed regions, and across different points of the wage distribution (Section 3). Section 4 concentrates on the employees with higher education and, specifically, attempts to assess the public sector’s ability to attract and retain the best professionals. The issue is investigated on the basis of premia and wage compression, as a whole and also for specific occupational categories. In this section, we also make some considerations about how the interaction of the public and private sectors in the market for highly-skilled labour seems to have influenced the way wages have changed.