The public sector pays on average more than the private sector (see Fig. 1). This is consistent with the literature (see, Bender 1998; Depalo et al. 2015). The unadjusted wage differential is 14 percent higher in the public sector. Most workers are employed in the private sector, at 67 percent, but there are a few countries where the public sector dominates.
The pay determination in both public and private sectors is consistent with the human capital model (see Annex Table 1). However, the effect of education on earnings is stronger in the private sector. This implies the private sector recognizes the higher productivity of the educated employee where market returns matter. The returns to schooling are higher in the private sector, at 7.5 percent, than in the public sector, at 7.2 percent (Fig. 2). Overall, the estimates are slightly lower that what is reported in Montenegro and Patrinos (2021) but similar to the findings in Psacharopoulos and Patrinos (2018).
In fact, in 18 cases returns are higher in the private sector; for another 6 countries, the differences are minimal; only in 5 cases are the returns higher in the public sector. These findings are in line with the literature (see, for example, Kanellopoulos 1997). In Turkey, contrary to many findings in other countries, private returns to those working in the public sector are higher than those in the private sector, and private returns to those who followed the vocational track in secondary education are higher than those in the general academic track (Patrinos et al. 2021); however, that’s an aberration even for Turkey (Akhmedjonov and Izgi 2012).
Overall, returns are highest at the tertiary level; in terms of private-public differences: the returns are higher in the private sector, at 9.5 vs. 6.8 percent in the public sector. This is consistent with the literature (see, for example, Depalo et al. 2015). The returns to experience are higher in the private sector.