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Identification issues in the public/private wage gap, with an application to Italy
Author(s) -
Depalo Domenico
Publication year - 2017
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2608
Subject(s) - wage , instrumental variable , identification (biology) , estimator , population , economics , econometrics , private sector , public sector , variable (mathematics) , order (exchange) , demographic economics , labour economics , statistics , mathematics , economic growth , economy , demography , sociology , finance , mathematical analysis , botany , biology
Summary This paper reviews some of the standard assumptions that are imposed in order to estimate the average public/private wage gap and that are mainly related to the possible selection of the sector. There are two contributions to the existing public/private wage gap literature. One is a better understanding of the identified parameters: standard estimators identify a local effect (LATE), which in general cannot be generalized to the entire population, as instead is almost always done. The other is the partial identification of the population average treatment effect, with an instrumental variable. To the best of my knowledge, this is the first paper in this literature that employs bounds. The technique is applied to male workers in Italy. For compliers, LATE estimates a wage advantage from working in the public sector greater than 30%. This return is within the narrowest bounds on the population average treatment effect that are consistent even with a much smaller gap (about 15% or more).