Compensation Comparisons between Sectors in US: A Propensity Score Matching Approach

This work attempts to find evidence on the extent of the rent paid to public sector workers in the United States by comparing human capital returns between the public and private sector, controlling for selectivity bias. Using information from the Health and Retirement Study (HRS) and the Current Population Survey (CPS) for the period 1992-2000, I apply propensity score matching methods in order to obtain workers from both sectors comparable in terms of their propensity score or conditional probability of working in the public sector. Results show a wage premium paid to public sector workers ranging from 3.5 percent to 11.1 percent when controlling for union status, and from ?1.6 percent to 6 percent without controlling for union status. Wage differentials widen when adjusted for nonwage pecuniary benefits, with public sector workers enjoying relatively better jobs. In the presence of selectivity bias, the wage premium seems to be underestimated.