Human capital and public-private wage differentials in the US: evidence from the NLSY79 (2008–2018)

Information from the abstract

Despite a long-standing literature documenting wage differentials between public and private sector workers in the US, the factors underlying these differences remain only partially understood. Existing studies examining human capital explanations for public-private wage differentials have largely focused on general labour market experience and firm tenure, with limited attention to industry and occupation-specific human capital. This study examines the extent to which different forms of human capital: general, firm-specific, industry-specific, and occupation-specific, which contribute to public-private wage differentials using data from the National Longitudinal Survey of Youth 1979 (NLSY79) from 2008 to 2018. Employing Oaxaca decomposition, ordinary least squares, and random-effects models, the results show that human capital explains a substantial share of the observed public-sector wage premium. Firm-specific human capital is the largest contributor, followed by industry-specific human capital, while general human capital has a smaller but statistically significant effect. In contrast, occupation-specific human capital does not explain the wage differential once unobserved individual heterogeneity is taken into account. The findings are robust to propensity score matching and alternative sample restrictions. Overall, differences in the accumulation of specific human capital, particularly within firms and industries, help explain the persistence of public-private wage differentials in the US.

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