This research paper has been prepared in response to user needs to inform discussions relating to the composition of earnings and presents analysis in relation to the public/private sector pay differential.
The analysis is similar to previous work carried out by the CSO on the Public/Private sector pay differential (see References chapter for more information) where the statistical analysis takes into account the differences in characteristics of employees and their employment in both sectors. The attributes of the employees (e.g. educational attainment, experience, hours worked etc.) and the characteristics of their employer (e.g. size of organisation) were used to further explore the wage differential between the two sectors. In common with previous publications, this analysis does not compare similar jobs between the public and private sectors. For example, An Garda Síochána and Defence Forces personnel are found exclusively within the public sector, while persons engaged in the Accommodation and Food Services, Manufacturing and Construction are found exclusively in the private sector.
Estimates of the wage differential are sensitive to the choice of model specification and to the methodology applied. For this reason, rather than attempting to estimate one single definitive answer, this paper presents a range of different results. Models including and excluding size of enterprise (at the local unit level) as a wage determining characteristic are presented and gross weekly earnings as well as weekly earnings after the deduction of the pension levy are considered. In line with Kelly et al (2009a and b) and Murphy and Ernst & Young (2007), we restrict the sample of employees considered here to a cohort consisting of permanent full-time employees aged 25-59 years. Separate analyses are presented for males and females.
The methods used in these analyses are: Ordinary Least Squares Regression (OLS); and Quantile Regression. For each of these methods, a range of specifications are presented: size of an enterprise at local unit level as a wage determining characteristic included, size of enterprise excluded, gross earnings and earnings after the deduction of the public sector pension levy. The result of all these analyses is a range of public/private sector pay differentials. A summary of the models used is detailed in the Methodology and Data Sources chapter.
The full range of estimates of the public/private sector pay differential for all employees (males and females) and separately for males and females, are presented in this paper.
Traditionally econometric analysis of the public/private sector pay differential would be based on data from a structural survey of earnings. However due to budgetary pressures no such survey has been carried out by the CSO since 2009. In the absence of structural earnings data, the CSO investigated alternative approaches to allow for a detailed econometrics analysis.
The approach taken in developing the methodology for the 2011-2014 analysis was to use a combination of survey data and administrative sources based on the individual characteristics of employments available from the CSO’s Quarterly National Household Survey (QNHS), now known as Labour Force Survey (LFS), and matching it with earnings data for corresponding individual employments from the Earnings Analysis using Administrative Data Sources (EAADS). This approach has been repeated for the analysis presented here for 2015 - 2018.
The analysis presented in this paper looks at the impact of both the inclusion and the exclusion of the Pension Levy with respect to Public Sector pay.
The analysis provides breakdowns on the basis of gender using the classifications Male, Female and All (Males & Females).
The results presented have categorised commercial semi-state organisations as private sector; employees in commercial semi-state organisations are not required to pay the public sector pension levy.
Models including and excluding size of enterprise as an explanatory variable are presented.
Comparing pay in the public and private sectors is not a straightforward task. A range of different results can be derived depending on the methodology or model specification used to estimate pay differentials. Complexity also arises as the composition of the two sectors are heterogeneous, comprising of a variety of different industries, occupations and workers who themselves come with a variety of education, experience and skill sets.
Using the simple mean (or median) hourly or weekly pay to compare earnings across the public and private sectors will therefore, most likely, be misleading. For example, pay differentials may arise from a range of structural differences: skill levels required for a particular job; experience; qualifications; or location. Typically the relative distribution of men and women also has an impact. For these reasons CSO have employed a number of multivariate statistical techniques in an attempt to standardize these effects and present comparable data.
The methods used in this report build on the peer reviewed methods used in previous CSO analysis of the public/private sector pay differential. Expert opinion varies regarding a number of key issues, such as, whether to take size of enterprise into account as an explanatory variable or even which model to use. Thus, on a number of technical issues no unanimity exists within the international literature. These differences in approach can result in significantly different results.
This report follows on from previously published CSO information which analyse the wage differential between the public and private sectors in Ireland. In order to present balanced, comprehensive and objective analyses, and reflecting the lack of international agreement as to the best measure of calculating public/private sector wage differentials, a comprehensive spectrum of results are presented in this report. Consequently, several estimates of the wage differential are presented.
While this presents a wide range of information and choices for analysis it is important that readers understand there is no single, best measure of the public/private wage gap. Thus, any attempt to present a single, definitive, public/private sector pay differential would be subjective and prone to over simplification.
