Title: The public sector wage premium puzzle

Authors: Yi Wang; Peng Zhou

Addresses: Cardiff School of Management, Cardiff Metropolitan University, Western Avenue, Cardiff CF5 2YB, UK ' Cardiff Business School, Cardiff University, D47, Aberconway Building, Colum Drive, Cardiff CF10 3EU, UK

Abstract: This paper investigates the public sector wage premium in the UK over the first decade of the 21st century using both econometric and economic modelling methods. A comprehensive literature review is conducted to summarise the four popular types of methods adopted by the traditional microeconometric studies. Application of these methods results in an estimated public sector wage premium equal to 6.5%. Indirect inference is then introduced as a new method of testing and estimating a microfounded economic model. All four types of econometric methods can be used as auxiliary models to summarise the data features, based on which the distance between the actual data and the model-simulated data is assessed. The selection bias can also be tested in a straightforward way under indirect inference.

Keywords: public sector wage premium; microfoundation; propensity score matching; indirect inference.

DOI: 10.1504/IJCEE.2019.102511

International Journal of Computational Economics and Econometrics, 2019 Vol.9 No.4, pp.287 - 307

Received: 07 Oct 2016
Accepted: 29 Sep 2017

Published online: 30 Sep 2019 *

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