The Great Recession and the Public-Private Wage Gap: Distributional Decomposition Evidence from Croatia 2008-2011

We study the pay gap between the public and the private sectors in Croatia just before and in the wake of the recent Great Recession. Using the Labor Force Survey data, we decompose the real hourly wage gap of full-time workers in 2008 and 2011 into the contributions of differences in workers’ characteristics and differences in marginal returns to these characteristics. Besides decomposing the gaps in the two years, we analyze the main drivers of changes in the 2008-2011 period. The decompositions are performed at the mean, as well as at a number of quantiles along the distribution. In addition to quantifying the aggregate effects of characteristics and their marginal returns, we further decompose each of the two effects into the contributions of specific characteristics or groups of them. For the decomposition of the mean gap, the standard Oaxaca-Blinder framework is used, while in the case of quantile decompositions, this framework is combined with the recently developed unconditional quantile regressions. The results show that in both 2008 and 2011 there was a notable wage premium in favor of the public sector workers along the entire distribution, with both the differences in characteristics and marginal returns playing a role. The premium in favor of the public sector increased in the period considered, driven almost exclusively by changes in marginal returns.