New Research: Differences between the public and private sectors in the skills of educated workers and in the wage return to skills, and the link between the two variables: Evidence from the PIAAC surveys
- The level of basic labor skills of educated workers in the private sector in Israel is higher than that of educated workers in the public sector. This is in line with the other OECD countries.
- In most OECD countries that were examined, wages in the private sector are more sensitive than wages in the public sector to workers’ basic skills. Among women in Israel, the wage sensitivity gap between the sectors is higher than in other countries, and among men it is similar to the average of the other countries.
- The larger the wage sensitivity gap in favor of the private sector is, the higher the level of workers’ basic skills is in the private sector relative to the public sector.
A new study conducted by Dr. Yuval Mazar of the Bank of Israel Research Department examined how the private sector differs from the public sector in the basic labor skills that typify educated workers in advanced economies. The study also asked what variables are consistent with these differences, particularly the gaps between the sectors in wage sensitivity relative to skills (the return to skills).
Dr. Mazar made use of data from the PIAAC survey of adult skills conducted in parallel in Israel by the Central Bureau of Statistics and in a number of other OECD countries. The uniqueness of the survey is that it examined the basic skills of workers (in addition to wages, formal education and other qualities), which are comparable among the participating countries. The study found that the skills gap of educated workers between sectors varies among the countries, and that Israel is near the center from this standpoint (Figure 1).
It then examined how the wage of educated workers varies as a result of an increase in workers’ skills, comparing the private and public sectors. It found that in almost all countries, the return to skills in terms of wages is higher in the private sector (Figure 2), meaning that the higher the basic skills of workers are, the higher private sector wages will be in relation to the public sector. Averaging all the participating countries, the return to skills in the private sector is more than double what it is in the public sector. Compared to the other countries, the return to skills in Israel is relatively high in the public sector, and especially in the private sector, particularly among women. As a result, the return gap in Israel between the private and public sectors is similar to the average of the other countries among men, and higher among women (Figure 2).
The study also found that, among men, the higher the per capita GDP in a country is, the higher the level of skills is in the public sector relative to the private sector, and the larger the return gap is in favor of the private sector, the higher the level of skills is in the private sector relative to the public sector. For a given per capita GDP, the relative skills of women in the public sector are lower, when the return gap is wider.