public employment (consequences on public – private wage differences) 1st Vienna Conference on Western Balkan Labour Markets Vienna, April 2017 Vojin Golubovic

Some features of WB countries Big public sector size High share of public sector wage bill as % of government expenditures and GDP Higher level of employment protection in the private sector (for some countries) compared to OECD average

Country Share of the public sector employment Share of public sector wage bill in total government expenditure Share of public sector wage bill in the GDP Albania 16.6% 24.2% 6.9% Bosnia & Herzegovina 30.2% 27.5% 10.6% Kosovo 32.6% 28.0% 8.0% Macedonia 22.4% 18.6% 5.9% Montenegro 30.4% 26.9% 9.3% Serbia 28.4% 24.7% 9.8% OECD 22.0% 14.7% 5.4%

Public-private wage differences? Employees in the public sector have, on average, higher wages than workers in the private sector (European Commission, 2014) Partially, these differences can be explained by the better characteristics of workers from the public sector (higher levels of education, more working experience, etc) Public sector wage premium – what are the differences in wages for “the same job”, i.e. when we control for these characteristics?

EU (2010) (European commission, 2014) Positive premium Negative premium Equal wages

Consequences of the public-private wage differences (EC, 2014) distortions on the labour market (waiting in line for the job in the public sector, or ineficient government) deteriorate the external competitive position GDP growth and the overall economic efficiency Austerity measures Decreasing wages in the public sector is more efficent than other austerity measures

Public private wage differences in the WB Comparative data not available for the whole public sector We focus on the trends of the wages in three NACE activity sectors: Public Administration and Defence; Compulsory Social Security (sector O), Education (sector P) Human Health and Social Work Activities (sector Q) Compare them with the average wage

Available data on public-private sector differentials Public Administration

Available data on public-private sector differentials Education

Available data on public-private sector differentials Health

Available data on public-private sector differentials Summary – comparison to the EU average   Alb B&H Kos Mac Mon Ser Public administration High Highest Moderate Low Education Health

Public sector wage premium No comparable data for all countries that would include the whole public sector Review of the literature Public-private wage gap Simple difference in average wages between the sectors (expressed as the percentage of private wages) Public sector wage premium Difference in wages for the “same job” Obtained using the microeconometric techniques

Public sector wage premium Paper Data Wage gap Premium ALB Shehaj, 2016 LSMS, 2012 30.5% women 15.5% men 4.4% women 4.3% men KOS HBS, 2011 21%, men 2%, men MON Avlijaš et al, 2013 LFS, 2008 - 2011 17% women 2% men 6% women -1.7% men MAC 46.3% women 32.6% men 16.4% women 12.9% men SER 42.2% women 34.5% men 20.4% women 14.7% men BOS Djukic, 2009 Administrative data, 2008 55% total

Public sector wage premium Public sector wage premium differs across the wage distribution in Albania and Kosovo (Shehaj et al, 2015) and Serbia (Vladisavljević, 2016) Low wages Significantly higher in public sector in all three countries High wages Higher in public sector (Serbia) Equal in public and private sector (Albania) Higher in private sector (Kosovo)

Wage settings and institutional factors These institutional mechansims have been found to have an impact on the wage premium (EC, 2014) Employment protection in the private sector Higher protection of the private sector workers makes public employer pay higher wages Public sector size mopsonistic power of the state as the employer decreases the level of the public sector wage gap

Discussion Empl. protection Public sector size Public wage bill Wage gap Wage premium Montenegro 2.88 30.4% 9.3% 17% f 2% m 6% f -1.7% m Kosovo 2.08 32.6% 8.0% 21%, m Albania 2.49 16.6% 6.9% 30.5% f 15.5% m 4.4% f 4.3% m Macedonia 2.29 22.4% 5.9% 46.3% f 32.6% m 16.4% f 12.9% m Serbia 2.23 28.4% 9.8% 42.2% f 34.5% m 20.4% f 14.7% m Bosnia & Herzegovina 2.58 30.2% 10.6% 55% OECD Average 2.27 22.0% 5.4% 2.9% f

Discussion Accross the distribution (Alb, Kos, Ser) Low wages Significantly higher in public sector in all three countries The same mechanism: unions, minimum wage? High wages Higher in public sector (Serbia), equal (Albania), higher in private sector (Kosovo) Differences only for the higher wages? Public wages lower to avoid the image of high and unjustified spending of the government money (Giordano et al, 2011)

Conclusions Alb, Kos, and Mon: higher public wages explained by LM characteristics (education, experience, etc.) B&H, Mac and Ser, public wages significantly higher, and (although partially explained by the better LM characteristics) the public sector wage premium is significant and positive. size of the premium in Mac and Ser among the highest in Europe (B&H probably even higher) No evidence that private sector employment protection or public sector size explain the premium in WB Differences in the wage formation at higher levels (political factors of the high wages determination?)

Thank you for attention