The effect of large-scale privatization on public sector pay gap in a transition economy

Estimating the public-private sector earnings differentials in Serbia from 1995 until 2008 this paper finds significant changes at the mean and across the earnings distribution. The results show that the average public sector pay gap was negative at early stages of economic transition but grew to be positive during large-scale privatizations. The paper uses different sources of data and adopts a number of statistical procedures, including a novel instrument to infer the likelihood of changes in the individual public sector status due to privatization.