Income differentials in the police and taxation departments’ employees in Peshawar

The study examines wage-risk relationship among the employees of police and Excise and Taxation Departments in Peshawar, Pakistan. The city paid the highest price in the countries’ war-on-terror with the largest death toll and miseries of inhabitants belonging to all walks of life. Working in police is considered risky whereas, employment in Excise and Taxation Department is non-risky. The salary structures are similar in both the bureaus except for receipts due to facing on-job hazards. Primary data are collected from Peshawar city through structured questionnaires and a Probit risk selection model is estimated for both the organizations to assess the effects of injury compensations and social security packages provided to the employees. Inverse-Mills-ratio is calculated through the model estimation and incorporated into the hedonic wage models separately for both departments. Inverse-Mills-ratio is induced to reduce the sample selection bias. Furthermore, Oaxaca–Blinder decomposition analysis is employed for comparing incomes in the departments to find the difference between the incomes of the respondents. The employed methodology enables us to decompose the differential into explained and unexplained parts. The study finds that higher injury compensations and social security packages are provided to employees in risky jobs, which is consistent with the theory.