France

Basic Sample Description

For France the sample constructed retains 2281 men, each with between 4 and 8 observations, 6.2 observations on average.22 _{Of the 2281 individuals, 1566 (68.7%) are initially observed in} private sector employment and remain in the sample for an average of 6.2 years. A further 547 (24.0%) individuals are first observed employed in the public sector and remain in the sample for 6.3 years on average. The remaining 168 men (7.4%) are first observed unemployed and they remain in the sample for an average of 5.6 years.

In terms of education, the France sample breaks down overall as 25.8% “high”, 45.7% “medium” and 28.5% “low”. There is a difference between the sectors in terms of education composition: the private sector having 23.8% high educated workers, 46.5% medium and 29.7% low, with the corresponding public breakdown 33.3%, 43.5%, 23.2%. So the proportions of medium educated workers are very similar between the sectors, with the main difference being that the public sector attracts more high educated and fewer low educated workers. The public

21

These public sector entry rates have to be treated with care as very few people are observed unemployed in any single year and of these around one fifth have not been observed in employment before. As a result the public sector entry rates for those most recently observed in the public sector derive from only 41 individuals.

22

There is some sample attrition, 26.0% after 4 years and 60.7% at 8 years, we assume this to be exogenous. Some of the attrition is the result of our sample construction rules which treat an individual as censored from the first gap in their response history (this affects 21.4% of our sample).

sector workers are also on average a couple of years older than those in the private sector (41.7 years old versus 39.5) and have a couple more years of potential labour market experience (22.6 years versus 20.8). 4 5 6 7 8 9 10 11 12 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 year

France: unemployment rate (LFS)

23 24 25 26 27 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 year

France: public share of total employment (sample)

Figure 4.3: France: Unemployment rate, males, 1991-2001, and Sample public sector share

To illustrate the pattern of the French labour market over time, Figure 4.3 plots the un- employment rate for the years 1991-2001 (top panel) thus covering our sample period plus the years leading up to it, and the public share of total employment in our sample (bottom panel). The unemployment rate was rising steadily from 7% in 1991 to almost 11% by 1994 and the start of our sample. During the sample period the unemployment rate remains largely stable around 10% before slightly dropping down towards the end of the millennium. The public share of total employment however remains almost totally constant through the sample time frame, 26% to the nearest percent in each year.

Differences in Earnings

Earnings levels. The public-private differences in earnings levels are now described through the simple regressions in Table 4.5 in which the dependent variable is the log of current gross monthly earnings. The hours distributions for full-time workers are similar for each sector (both have median weekly hours of 39) though as we might expect, the public sector hours distribution

has less variation, considerably less in fact: the standard deviation of weekly hours is smaller by just over two hours.

Column 1 of Table 4.5 shows that the raw public pay gap in the French sample is 12.5 log points (13.3%) in favour of the public sector. Some of this positive public premium is the result of selection however, as conditioning on education band and a quadratic in (potential) labour market experience (column 2), reduces the premium to 4.1 log points (4.2%) though it remains strongly significant. This significant positive premium appears to be driven by those in the “low” education band, as when we allow for different public premia depending on education and experience (column 3), the coefficient on the public sector dummy becomes insignificantly different to zero, while the interaction term for low educated public sector workers is strongly significant, the coefficient of 0.131 suggesting a 13.9% public premium for these workers. This concurs with the findings of Bargain and Melly (2008) who only find a positive public premium for blue collar workers. Allowing for fixed individual effects23and conditioning on just the quadratic in experience (column 4), the estimated public premium is no longer significant. Introducing the interaction between the public dummy and the quadratic in experience (column 5), the public premium is estimated to be 3.8 log points but has a large standard error (t=0.55). The interaction between public and experience-squared is significant and suggests that the public premium is initially falling for the first decade or so of work before rising as the individual acquires more labour market experience. This fixed effects specification (column 5) suggests that returns to experience are lower in the public sector for the first half of a working lifetime such that the small positive public premium initially falls with experience (minimum of zero premium estimated at 13 years experience) before rising again as public sector returns to experience increase above private returns in the second half of a working lifetime.24

Earnings dispersion. The standard deviation of log earnings is lower in the public sector than in the private sector (0.396 versus 0.430) illustrating the greater wage compression in the public sector. This is supported by the 90:10 ratios of raw earnings which are 2.730 (public) and 3.068 (private) with corresponding figures conditional on age and education of 2.404 and 2.688

23

The reported fixed-effects regressions use the within-estimator. First differenced estiamtes are very similar for France.

24

It should be borne in mind that in the fixed effects regressions, the basic public premium is identified from only 58 individuals (2.62% of the sample) who are observed in both sectors during the life of the sample.

respectively.

Earnings mobility. Looking at the regressions and the dispersion of earnings, we see that the public and private sectors differ in terms of their cross-sectional earnings distributions. Moreover, the sectors differ with respect to earnings mobility, as illustrated in the top panel of Table 4.6 which shows the transition matrices between unconditional raw earnings quintiles from one year to the next for the public and private sectors respectively.25 The matrices show that there is greater persistence in the lower earnings quintiles rank amongst those individuals continuously employed in the public sector than amongst those continuously employed in the private sector, whereas in the higher earnings quintiles the level of persistence is very similar in each sector. This pattern is also exhibited in the transition matrices for ranks of log earnings conditional on education and a quadratic in (potential) labour market experience (lower panel of the Table).

As the earnings distribution is slightly more compressed in the public sector than in the private sector, transitions between earnings quintiles in the public sector do not represent quite so large changes in earnings as similar transitions in the public sector, thus the fact that private and public sector mobility is similar would indicate larger rises (falls) in earnings in the private sector. The 1-lag auto-covariance of normalised log earnings, having conditioned on education and a quadratic in (potential) labour market experience, is markedly greater for individuals employed in the public sector for consecutive periods (mean of 0.950) than it is for individuals in the private sector for consecutive periods (mean of 0.828). This also suggests greater persistence in earnings in the public sector.

Differences in Job Mobility

The transition matrix below shows the changes in employment sector between one wave and the next, with rows referring to sector in yeart-1, columns to sector in year t:

Private Public Unemp. Private 96.9 0.3 2.7 Public 0.8 98.2 0.8 Unemp. 33.4 4.6 61.8 25

It is immediately clear that movements directly from one employment sector to the other from one year to the next are exceedingly rare: only 0.3% of individuals employed in the private sector in year t-1 are employed in the public sector in year t, with movements in the opposite direction relatively more frequent but still extremely rare (0.8%). The average annual rate of transition into unemployment from the private sector while low at 2.7% is still more than three times the corresponding job loss rate for the public sector (0.8%), suggesting that job security is greater in the public sector. This greater job security of the public sector is also shown in the probability of ever being observed unemployed if an individual is initially observed in public sector employment, which is only 4.2%. The corresponding figure for the private sector is 10.8%. Unemployment persistence is quite high, 61.8% of those who are unemployed in year t-1

remain unemployed in yeart. Only 4.6% of the unemployed will exit to public sector employment by the next interview, whereas 33.4% exit to employment in the private sector. This aggregate rate of entering public sector employment after being unemployed disguises a difference between those whose most recent employment prior to becoming unemployed was in the public sector and those whose most recent employment was in the private sector. The public employment rate of the unemployed who have most recently been employed in the public sector is 9.1% whereas for those who were in the private sector before becoming unemployed, the chance of gaining public sector employment is only 3.3%, indicating that there is a certain degree of public sector attachment.26

Of the 360 individuals (15.8% of the sample) who are ever observed unemployed during the time-span of the sample, 27.5% report being unemployed in three or more consecutive interviews. The 1-year re-employment rate for these “long-term” unemployed is considerably lower, 15.6%, than it is for “short-term” unemployed who have a 67.5% chance of gaining employment by the next interview.

26

The figure for public sector re-employment has to be treated with caution as it relates to only 44 individuals who have been public employed most recently before becoming unemployed.