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Identification issues in the public/private wage gap, with an application to Italy

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  • Domenico Depalo

Abstract

This paper reviews some of the standard assumptions that are imposed in order to estimate the average public/private wage gap and that are mainly related to the possible selection of the sector. There are two contributions to the existing public/private wage gap literature. One is a better understanding of the identified parameters: standard estimators identify a local effect (LATE), which in general cannot be generalized to the entire population, as instead is almost always done. The other is the partial identification of the population average treatment effect, with an instrumental variable. To the best of my knowledge, this is the first paper in this literature that employs bounds. The technique is applied to male workers in Italy. For compliers, LATE estimates a wage advantage from working in the public sector greater than 30%. This return is within the narrowest bounds on the population average treatment effect that are consistent even with a much smaller gap (about 15% or more).

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  • Domenico Depalo, 2018. "Identification issues in the public/private wage gap, with an application to Italy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(3), pages 435-456, April.
    • Handle: RePEc:wly:japmet:v:33:y:2018:i:3:p:435-456
    DOI: 10.1002/jae.2608
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    Cited by:

    1. Michael, Maria & Christofides, Louis N., 2020. "The impact of austerity measures on the public - private sector wage gap in Europe," Labour Economics, Elsevier, vol. 63(C).
    2. Cindy Biesenbeek & Siemen Werff, 2019. "Public–Private Wage Differentials: Evidence from The Netherlands," De Economist, Springer, vol. 167(1), pages 23-43, March.
    3. Domenico Depalo & Santiago Pereda-Fernández, 2020. "Consistent estimates of the public/private wage gap," Empirical Economics, Springer, vol. 58(6), pages 2937-2947, June.

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