Spatial Variation of Public-Private Wage Differentials

The aim of this paper is to estimate the adjusted sectoral wage gap in Poland and to examine its spatial differences in terms of the size of settlement units. In particular, a hypothesis that there is a negative relation between the public-sector wage premium and the size of a settlement unit is tested. We use a set of individual data from the representative survey Human Capital Balance (BKL) carried out in Poland for the period from 2010 to 2014. We apply the control function approach (both with homogeneous and heterogeneous impacts) to address the problem of selection mechanism. We show that, after controlling for structural differences in employment, generally there is a moderate positive premium related to public employment. However, this premium differs between types of settlement units, with public employment being most attractive in medium-sized cities. This may pose a challenge for the public sector regarding attracting highly qualified employees in the biggest cities. As a consequence, the efficiency of public-sector services provision (education, healthcare, administration) may be seriously threatened.