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Journal of Applied Economics
rather small effect compared to other variables such as firm size or union
perception.19
V. Implications and conclusions
Post-devolution public-private wage differentials in Scotland are studied using
newly available data from the BHPS to establish whether earnings differentials
exist and differ from the rest of the UK. In contrast to other UK-wide and regional
studies this paper controls for both sample selection from the participation decision
and the sector choice.
The wage gap is shown to be 10 % for males and 24 % for females. For males
this is mainly due to differences in productive characteristics and sector selection.
For females, the picture is more ambiguous. In contrast to other UK studies, there
is evidence of a male private sector wage premium that is mainly due to sector
selection emphasising the need to control for section bias. It is shown that wage
differentials between sectors are an important driving force for sectoral assignment.
Furthermore, results vary along the pay distribution. Evidence shows that private
and public sector premiums for men and women respectively are mainly an issue in
the upper parts of the earnings distributions.
While sector selection is expected to be responsible for a large part of the
differences in results compared with other UK studies, there may be further
explanations. Firstly, despite the devolution, wage setting in the public sector
does not match up with the new institutional arrangements and has not significantly
changed since 1999. Hence, the Scottish Executive is only partly responsible for
any pay differential. Secondly, Scotland faces fierce competition with the rest of
the country over skilled labour in both the public and private sector. While earnings
in the private sector can adjust to a tight labour market, the public sector often
lacks regional flexibility. Therefore, the distinct absence of a male wage public
sector premium in Scotland may also be partly the result of adjustments in the
private rather than public sector.
This is different for women where findings are more in line with UK wide
results. However, the high proportion of women in the public sector in general and
in health and education in particular combined with a relative shortage of staff in
19 However, it has been remarked that the effect at the mean is still likely to be large given the
large raw difference in public-private sector wages.