What would the average public sector employee be paid in the private sector?
I estimate the average Australian public sector wage premium and consider whether it varies with skill. The chosen approach is a quasi-differenced Generalised Method of Moments panel data model, which has not been previously applied to this topic, internationally. Its main advantage over competing models is that it accounts for sectoral differences in returns to unobserved characteristics. It thus facilitates a decomposition of the raw sectoral wage gap into the component explained by sectoral differences in returns to all (observed and unobserved) characteristics and the component explained by differences in the stock of those characteristics. The average premium is estimated to be 3.3% for men (95% CI: -2.5%, 9.1%) and 7.1% (95% CI: 3.0%, 11.3%) for women. No evidence is found to suggest that the size of the differential varies with skill.
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