WAGE DIFFERENTIALS BETWEEN THE PUBLIC AND PRIVATE SECTORS

Public sector employment and the tax pressure has grown very rapidly in Denmark in recent years. This paper discusses a new policy option for government using its role as a dominant employer to reduce relative public sector wages. The paper contains an empirical analysis of wage differences between the public and the private sectors in Denmark using a longitudinal data set covering the years 1976-1985. Fixed effect regressions show that a wage-twist policy of this type has been used in these years. One of the consequences of a wage-twist policy in the public sector is recruitment and retention problems for public employees. © 1990.