Econometric Analysis of the Public-Private Sector Pay Differential 2022

Ordinary Least Squares Regression (OLS)

The OLS regression results for the period 2015 to 2022 are presented in Table 4.1 below. These results show the estimated public-private sector pay differential taking account of when the additional superannuation contribution is both included in and deducted from gross weekly earnings and when the size of an enterprise is both included in and excluded from the model.

Only the estimated public-private sector wage differentials are presented in the tables. More detailed results for other explanatory variables are available in the Detailed OLS Results chapter.

Results for 2015 to 2018 include revisions which occur due to the firm size variable change. The firm size used in the 2015-2018 analysis used the size of the local unit whereas this analysis uses size of enterprise. A second revision includes the removal of shift work from the analysis, this variable will only be available on a biennial basis, so the decision was made to remove it from the analysis going forward. Results are presented in the table below for information. Commentary in this chapter relates to the results for the period 2019-2022.

Summary of Results

• Between 2019-2022 there is no clear trend to the public-private pay differential. However, there does appear to be a levelling off in the public-private sector pay differential from 2016 with slight reductions from 2018-2020. Figures have generally remained stable over this period with minor fluctuations. Due to the impacts of COVID-19 on the labour market and earnings from 2020-2022 it is to early to see if further reductions in the public private pay differential are a definitive trend during this period.
• Including and excluding size of enterprise from the models has a significant effect on the pay differential. When size of enterprise is included, the public sector discount ranges from -4.4% to -6.6% in 2022. With size of enterprise excluded, the public sector differential ranges from a premium of 0.9% to a discount of -1.4% in 2022.
• The additional superannuation contribution has on average a -2.2% effect on gross earnings over the 4-year period 2019-2022.
• The size of the pay differential in the public sector was higher for females than for males i.e. females in the public sector have a higher pay differential than males in the public sector when compared to their private sector counterparts.
• When comparing the public and private sector for 2022, the pay differential for male employees in the public sector ranged from a discount of -4.5% to a discount of -11.0% depending on the specification used in the model.
• The corresponding differential for females showed that female workers in the public sector had a differential ranging from a premium of 6.7% to a discount of -2.2% depending on the specification used in the model.

The following graphs summarise the results of a series of quantile regression analyses for permanent full-time employees aged 25-59. Regression models both including and excluding size of enterprise were performed and these models were run on gross earnings before the deduction of the additional superannuation contribution and on gross earnings after the additional superannuation contribution was deducted.

The graphs presented here are based primarily on gross weekly earnings before the additional superannuation contribution is deducted. Further analysis using different specifications are available on request.

Figure 4.1 shows the premia at various points throughout the earnings distribution (before the deduction of the additional superannuation contribution) for 2019 to 2022. It is clear that the public sector differential was highest for those at the lower end of the earnings distribution. The pay gap decreased consistently as earnings increased for all four years.

In 2019 the pay differential at the 50th percentile was 2.1% and it was between the 50th and 60th percentile at which the pay differential became a discount. In 2022 the pay differential at the 50th percentile was 3.3% and the percentile at which the pay differential became a discount was the 60th percentile.

Figure 4.2 shows the premia for males only for each of the four years. In 2019 the pay gap became a discount between the 30th and 40th percentile. This moved to between the 50th and 60th in 2022.

Figure 4.3 shows the premia for females for the same time period. The size of the pay gap at each decile has not changed as much for females between the four years as it did for males. In 2019 the pay gap became a discount between the 70th and 80th percentile. This was the same in 2022.

Figure 4.4 shows the premia across the earnings distribution separately for males and females for 2022. The premium is higher for females than for males at every point throughout the earnings distribution, the difference between the two widens at the higher end of the distribution from the 70th percentile and up.

Figure 4.5 allows us to compare the magnitude of the pay gap across the earnings distribution for gross weekly earnings and for earnings when the additional superannuation contribution is removed. On average there is a decrease of approximately 2.2 percentage points in the size of the premium when the additional superannuation contribution is deducted from weekly earnings. The point on the distribution at which the pay gap becomes a discount is the 60th percentile for gross weekly earnings and just after the 50th percentile when the additional superannuation contribution is deducted.

In order to evaluate the impact the inclusion of the size of enterprise as an explanatory variable on the resulting premium, Figure 4.6 shows the premia broken down by gender for models with size of enterprise both included and excluded for 2022.

It is interesting to note that at the lower end of the earnings distribution, excluding the size of enterprise variable from the model has the effect of increasing the premium, while higher up the earnings distribution this effect reduces, particulary for males.