Are public sector workers in Ghana overpaid? Evidence from a Blinder-Oaxaca decomposition analysis.

Abstract

Abstract This paper employs the Blinder-Oaxaca decomposition method to estimate the private-public sector wage gap, investigating the public sector wage premium using an analytical sample of 876 wage workers. These workers were drawn from a nationally representative household dataset - the seventh round of the Ghana Living Standards Survey (GLSS 7) data. The results suggest that private sector workers, including those in the informal sector, earn lower wages than their counterparts possessing the same level of human capital in the public sector. Returns to education in the public sector surpass those in the private sector, particularly for the less educated. However, the wage gap becomes statistically insignificant when observed among formal private sector workers and formal public sector wage workers, a consistency with public sector wage compression. These findings contribute to the ongoing debate about private-public wage differentials by introducing context-specific insights from Ghana, particularly when comparing the wages of formal private and public workers. Although the results challenge the common belief that private sector workers receive significantly less premium than public sector workers, this paper underlines the importance of formalizing the predominantly informal private sector as a policy measure to reduce the private-public wage gap. JEL classifications J24, J31, J45, J46