Public-private sector pay differentials in a devolved Scotland

Journal of Applied Economics

at the 1% level. Hence, on average, there is a substantial and significant pay gap
for both males and females. A Wilcoxon rank-sum test for the equality of the public
and private distribution is clearly rejected for both males and females.

Figure 1. Log hourly wages in the public and private sector by gender in 2000.

III. Econometric framework

The paramount aim of the paper is to estimate wages in the public and private
sector in order to study the causes of the unconditional earning differentials and
derive a structural switching equation that determines the sector choice. Hence,
in the following a switching regression model is adopted (Lee 1978) that estimates
separate wage equations for the public and private sectors. Let w_1,i and w_2,i be the
hourly wages in the public and private sector, respectively. Thus, the two log wage
equations to be estimated are:

^{ln w}1,i ^{= X}1,i^'β1 ^+ε1,i

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