The effect of public wages on corporate compensation in Hungary

I identify wage spillovers from the public to the corporate sector with the help of a large and sudden public sector wage increase, which raised real compensation by 40 percent in two years, changing the average public wage premium from minus 10 to plus 12 percent. Using a dataset covering about 7 percent of Hungarian workers and their employer, the spillover effect is identified with the variation of the share of public sector employment within groups defined by gender, experience and occupation. The analysis shows that 10 percent higher share of public sector workers within worker-type induces an additional wage growth of 15-20 percent around the wage increase. Controlling for firm (worker spell) fixed effects does not change the results qualitatively and results in a spillover effect of 11-14 (7.5-12) percent. The spillover effect is positively correlated with the public wage premium within worker type, with occupations which are abundant in the public sector, with the availability of public sector jobs and being hired after the wage increase

Political Selection of Firms into Privatization Programs. Evidence from Romanian Comprehensive Data.

Exploiting a unique institutional feature of the early Romanian privatization setup, when a group of firms was explicitly barred from any privatization, we test how politicians select firms into privatization. Using comprehensive data that includes all firms inherited from socialism, we estimate the relation between pre-privatization firm characteristics - the information known to politicians at the time of decision making - and the effect of privatization on employment, efficiency and wages. With the estimated coefficients we simulate the effect of privatization on non-privatizable and privatizable firms separately, including in the latter group both actually privatized and not privatized enterprises. The simulations show that politicians expected privatization to increase the employment of the privatizable group by 7 - 10 percent, and to decrease it in the non-privatizable group by 10 - 30 percent, depending on the first-stage estimation method, OLS or matching combined with OLS. We do not find such discrepancies in the expected change in firm efficiency; the simulated efficiency effect of privatization is large and positive for both groups of firms, and it 52 - 65 percent for non-privatizable, and 41 - 43 percent for the privatizable firms. The analysis does not support the hypothesis that wages played an important role in privatization decisions. Our study suggests that employment concerns played the key role in selecting firms for privatization, even if efficiency gains had to be sacrificed.Privatization, Government objectives, Firm Efficiency, Employment, Wages, Romania

Political Selection of Firms into Privatization Programs - Evidence from Romanian Comprehensive Data

Exploiting a unique institutional feature of the early Romanian privatization setup, when a group of firms was explicitly barred from any privatization, we test how politicians select firms into privatization programs. Using a comprehensive dataset that includes all firms inherited from socialism, we estimate the relation between pre-privatization firm characteristics (the information known to politicians at the time of decision making) and the effect of privatization on employment, efficiency and wages. We argue that other objectives, such as revenue maximization or bribe collection were of secondary importance in the early Romanian privatization. Using the estimated coefficients, we simulate the effect of privatization on non-privatizable and privatizable firms, including in the latter group both privatized and not privatized enterprises. The simulations show that politicians expected the reduction of employment by 5.2 percent of the non-privatizable group, as a consequence of privatization. Contrary to this expectation, employment in the privatizable group was likely to grow by the same proportion. We do not find such discrepancies in the expected change in firm efficiency, as the simulated efficiency effect of privatization is large and positive for both groups of firms, and it is around 40 percent. The analysis does not support the hypothesis that wages played an important role in privatization decisions. These results do not change qualitatively if the privatizable group is disaggregated into privatized and not privatized groups. Our study suggests that employment concerns played the key role in selecting firms for privatization, even if efficiency gains had to be sacrificed.Privatization, Government objectives, Firm behavior, Romania

Political Objectives and Privatization Decisions - Selection of Firms into Privatization or Long-Term State Ownership in Romania

With the help of a peculiar institutional feature of early Romanian privatization, when a group of firms was explicitly banned to become private, we test which factors contributed to the selection of firms into long-term state ownership. We find that politicians sheltered large and inefficient firms from privatization, which paid low wages and had high overdue payments. These results are consistent with minimization of employment losses, even if efficiency enhancement of privatization or revenue maximization had to be sacrificed. We hypothesize that this behavior was induced by the unfavorable economic conditions in Romania which brought about large employment losses during the first several years of economic transition.privatization, government objectives, Romania

Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986–2003

Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.privatization, employment, wages, ownership, Hungary, firms