The Effect of Employment Choice and the Wage Gap between the Public Sector and the Non-public Sector: A Study Based on the Two-Sector Model Perspective
Abstract: This paper examines the wage gap between the public and non-public sectors from the perspective of a two-sector model, with a particular focus on the employment choice effect. The analysis reveals that workers' choice of sector is based on a comparison of employment values, allowing the equilibrium outcome of the model to deviate from the "law of one price" under the assumption of a perfectly competitive market, as wage differences can exist. Using data from the China Household Income Project (CHIP) in 2013 and 2018, this paper employs the Copula method to estimate a switching regression model, controlling for the employment choice effect and relaxing the restrictive assumption of joint normality. The research findings indicate that, firstly, the public sector transitioned from a positive wage premium (6.0%) in 2013 to a negative wage premium (-0.1%) in 2018, marking the reemergence of the "wage penalty" phenomenon. Secondly, the wage gap between the two sectors exhibits heterogeneity, with the average treatment effect on the treated (ATT) being 37.5% and 10.6% in the two years, respectively, while the average treatment effect on the untreated (ATU) is -11.5% and 4.7%, respectively. This suggests that individuals who actually choose the public sector are more likely to earn higher wages than they would have in a counterfactual scenario. Furthermore, this heterogeneity is reflected in characteristics such as education, gender, and contract type.
