The Public and Private Sector Pay Gap in Pakistan: A Quantile Regression Analysis

This paper examines the magnitude of public/private wage differentials in Pakistan using data drawn from the 2001-02 Pakistan Labour Force Survey. As in many other countries, public sector workers in Pakistan tend both to have higher average pay and education levels as compared to their private sector counterparts. In addition, the public sector in Pakistan has both a more compressed wage distribution and a smaller gender pay gap than that prevailing in the private sector. Our empirical analysis suggests that about two-fifths of the raw differential in average hourly wages between the two sectors is accounted for by differentials in average characteristics. The estimated public sector mark-up, ceteris paribus, is of the order of 49 percent and is substantial by the standards of developed economies. The quantile regression estimates suggest that the mark-up was found to decline monotonically with movement up the conditional wage distribution. In particular, the premium at the 10th percentile was estimated at 92 percent as compared to a more modest 20 percent at the 90th percentile.