Portugal

Basic Sample Description

The constructed sample for Portugal comprises 2242 men, each with between 4 and 8 consecutive observations, with an average of 6.6 observations.34 _{Of these 2242 individuals, 1638 (73.1%) are} first observed in private sector employment and remain in the sample for 6.5 years on average. A further 447 (19.9%) are initially observed in the public sector and are retained in the sample for an average of 6.8 years. The remaining 157 individuals (7.0%) are first observed unemployed and remain in the sample for 6.1 years on average.

With respect to education, the Portugal sample overall comprises 7.8% “high” educated, 15.6% “medium” educated and 76.6% “low” educated individuals. This overall picture conceals some marked differences between the public and private sectors: the breakdown for the public (resp. private) sector is 15.6% high, 20.0% medium, 64.4% low (6.0% high, 14.4% medium, 79.6% low). Thus the public sector attracts markedly higher educated workers with a substantially larger proportion of high educated workers and a greater proportion of medium educated workers. Moreover public sector workers are on average more than 4 years older than private sector workers (41.5 years old versus 37.3) and have more than 3 years more potential labour market experience on average (23.7 years versus 20.4).

To illustrate the evolution of the Portuguese labour market over time, Figure 4.6 shows the unemployment rate from 1990-2001 (top panel), covering our sample period and the 4 years prior to it, and the public share of total employment for our sample (bottom panel). In the years prior to the start of the sample (in 1994), the unemployment rate rises gently from just above 3% in 1990 to just below 6% in 1994. During the sample period it is initially stable before falling relatively sharply between 1997 and 1998 and then continues to fall more gently to be just above 3% once again at the end of the sample period (2001). The public share of total employment in our sample falls over the sample window, from just under 25% in 1994 to just above 20% in 2001, with a large part of this fall being in 1998. Portugal was undergoing a period of privatisations through the mid-1990s and this is reflected in the fall in the public share of

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There is some sample attrition, 18.4% after 4 years, 52.32% at 8 years, which we assume to be exogenous. Some of the sample attrition is a result of our sample construction rules which treat an individual as censored from the first time that they have a gap in their response history (this affects 5.3% of our sample).

0 1 2 3 4 5 6 7 8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 year

Portugal: unemployment rate (LFS)

17.5 20 22.5 25 27.5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 year

Portugal: public share of total employment (sample)

Figure 4.6: Portugal: Unemployment rate, males, 1991-2001, and Sample public sector share employment in the mid-to-late-1990s.

Differences in Earnings

Earnings levels. Public-private differences in earnings are now illustrated through a number of simple regressions, see Table 4.11. Again, in each case the dependent variable is the log of current gross monthly earnings. There are marked differences between the sectors in terms of hours worked by full-time workers, despite each having a median of 40 hours work per week. In the private sector there are very few workers who work below the median hours and a large spike at the median, and another smaller spike above the median at around 45 hours per week. For the public sector there is a smaller mass at the median and more mass below it, with another spike at 35 hours. Therefore we will tend to under-estimate any positive public premium in hourly wages. In terms of variance both sectors are very similar, the standard deviation of weekly hours is larger by about 12 minutes in the public sector.

The first column of Table 4.11 shows that the raw public pay gap in out sample is 29.5 log points (34.3%) in favour of the public sector. However, it appears that this is driven to a large extent by selection: controlling for education band and a quadratic in (potential) experience (column 2), the positive public premium is reduced to 10.9 log points (11.5%) but is still sta-

tistically significant. Allowing the effect of public sector employment to vary with education band and experience (column 3) suggests that the premium does not vary with education but is affected by experience, the premium before any labour market experience being significant and

negative (−17.2 log points) but increasing with experience. Allowing for individual fixed-effects and controlling for a quadratic in labour market experience (column 4), the public premium is estimated to be almost zero and not statistically significant.35 Augmenting this specification to allow interactions between the public dummy and the quadratic in experience (column 5) we again estimate the public premium to be almost zero and not statistically significant.

Earnings dispersion. Unlike in the other countries that we consider, there is much greater earnings dispersion in the public sector than in the private sector in Portugal. The standard deviation of log earnings is 0.392 in the private sector, while in the public sector it is 0.511. The greater spread of earnings in the public sector is also reflected in the 90:10 percentile ratios of raw earnings, which are 2.563 for the private sector but 3.806 for the public sector. The corresponding ratios conditional on age and education are 2.281 and 2.626 respectively for the private and public sectors. Thus there is more earnings dispersion in the public sector than in the private sector, even after controlling for age and education.

Earnings mobility. The regressions and analysis of the earnings distributions show that there are differences between the public and private sectors in terms of earnings levels and cross-sectional distributions. Moreover, the extent of earnings mobility differs between the two sectors, as illustrated by Table 4.12 (top panel) which shows the transition matrices between unconditional log earnings quintiles from one year to the next for the public and private sectors respectively.36 The matrices show persistence in earnings rank to be much greater amongst individuals continuously employed in the public sector compared to those continuously employed in the private sector. This is confirmed in the lower panel of the Table which shows the transition matrices for ranks of the residual of log earnings conditional on education and a quadratic in (potential) labour market experience. Persistence is consistently greater for those continuously employed in the public sector.

Though the private sector earnings distribution is more compressed than that of the public 35

The reported fixed-effects regressions use the within estimator. Estimates from first differences provide very similar results.

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sector, these relatively large differences in rank transitions suggest that the private sector exhibits a greater degree of earnings mobility than the public sector. So the public sector has a larger range of earnings but individual’s earnings within that range are more persistent, whereas in the private sector the range of earnings is somewhat smaller but there is more movement of individual earnings within this range. Furthermore, computing the one-lag auto-covariance of normalised log income, after controlling for education and a quadratic in (potential) labour market experience, we find greater auto-covariance for those employed for consecutive periods in the public than those employed for consecutive periods in the private sector (0.929 versus 0.816).

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 94.8 2.5 2.6 Public 10.6 88.4 0.9 Unemp. 35.8 7.7 56.4

It is clear from this table that movements from the private sector in one year, directly to the public sector in the next are rare: only 2.5% of individuals employed in the private sector move to the public sector by the next interview. However, movements from the public to the private sector are considerably more frequent (10.6%). The average annual transition rate into unemployment from the private sector is 2.6% while from the public sector it is around a third of this, 0.9%, suggestive of greater job security in the public sector. This impression is re- enforced looking at the differing probabilities of ever being observed unemployed dependent on the sector that an individual was first observed in: those initally observed in the private sector are subsequently observed in unemployment with a probability of 14.0%, whereas for those first observed in the public sector it is only a 3.4% probability.

Of the unemployed in yeart-1, 56.4% remain unemployed in yeart, 35.8% exiting unemploy- ment by transitting into the private sector, 7.7% into the public sector. Of the 402 individuals (17.9% of the sample) ever observed in unemployment during the course of the sample, just un-

der a quarter (24.9%) record being unemployed in three or more consecutive interviews at some point during their observations. These “long-term” unemployed have a much lower probability of exiting unemployment each year (14.5%) than the “short-term” unemployed who find a new job by the next year with a probability of 72.2%. Thus the persistence in unemployment appears to be concentrated on the “long-term” unemployed.

There is also some evidence of public sector attachment, with the probability of an unem- ployed individual whose most recent employment was in the public sector finding a public sector job, much higher (24.3%) than the corresponding probability for an individual whose most recent employment was in the private sector (5.3%).37