Earnings dynamics and uncertainty in Italy : How do they differ between the private and public sectors ? ♣

This paper uses Italian panel data from the private and public sectors and analyses earnings dynamics by applying the minimum distance estimator of Chamberlain (1984). We consider two main aspects of earnings careers. First, we estimate a measure of earnings growth heterogeneity, whereby quantifying to what extent the two sectors differ in the ability to differentiate remuneration of time-varying aspects of productivity, such as learning capacity, thence providing different incentives to acquire skills on the job. Second, we estimate the inequality of permanent earnings as opposed to that of transitory earnings, the latter providing a measure of earnings uncertainty in the two sectors. We find that earnings careers markedly differ between public and private sectors. In particular, for private sector workers the life cycle of earnings matters in the formation of earnings differentials, i.e. the data indicate the presence of heterogeneity of earnings growth rates, which may serve as a remuneration of differential learning ability. On the other hand, public sector data indicate that earnings growth is homogeneous over the life-cycle and, as a consequence, initial earnings differences tend to persist over the career. When looking at differences in earnings uncertainty, we find that this is negligible in the public sector, suggesting that the public sector provides more secure jobs. Jel-code: C23, J31, J45