Money Matters: Sector Differences, Competition, and the Public Personnel System

Abstract

This study explores whether public personnel systems, particularly their compensation systems, are flexible and responsive to market wages in a competitive labor market. Focusing on registered nurses, we explore whether and how the public, private nonprofit, and for-profit labor markets influence each other in determining wages. We also examine if sector plays a role in determining wages. We use American Community Survey data from 2016 and 2017 to test these expectations. Fixed effects regressions and seemingly unrelated regressions with Chow tests reveal that higher wages in the dominant for-profit sector appear to drive up wages in the other two sectors, and vice versa. The results imply that public personnel systems are not so rigid and inflexible as perceived. Rather, they are sensitive to supply and demand and offer wages responding to competition from other sectors. Moreover, public employees do not ignore competitive opportunities in alternative employment markets in the private sectors. Students of public employment should not overlook the private sectors either. The markets are distinctive but not independent.