Do public ownership and lack of competition matter for wages and employment? Evidence from personnel records of a privatized firm

Abstract

Do public sector firm ownership and lack of competition matter for wages and employment? To address this question, we consider a large public-sector company that is privatized. Using personnel records, we find employment contract liberalization to generate relative wage losses for older, high-tenure, low-skilled, part-time workers, permanent residents, and women. Employment reductions mostly affect the same groups experiencing a wage decline. Overall, wage liberalization leads to an increase in wage inequality of between 6% and 9%, which-if applied to the whole public sector-would lead to a 52% to 76% closure of the "inequality gap" between the private and public sectors in Europe. Our results suggest that differences between public- and private-sector wage structures found in descriptive studies are to a large extent causal rather than the result of selection into these sectors and that public sector employment and career path regulations limit a firm's ability to maintain a competitive workforce. © 2013 by the European Economic Association.