1 Public-Private Wage Gap: Case of North Cyprus Sevin Uğural 1 Fatma Güven Lisaniler 2 and Nuru Giritli 3 Department of Economics Eastern Mediterranean University 7 th International Conference of the Middle East Economic Association (MEEA), Eastern Mediterranean University, Famagusta, May 29-31, 2008 I. Introduction North Cyprus is a micro state with its population approximately 200 thousand and land area 3355 km 2 located on the north part of the Cyprus Island. Its economy suffers from small scale, undiversified economic structure, weak economic growth, and high financial dependency on foreign sources, large public sector, and vulnerable private sector. Government is the largest employer. In the last three decades government of the North Cyprus kept on its employment 33.3% of all employed people. Also the personnel expenses despite their slowdown in the mid of the 1990’s constitute the second largest category 23.3 % of the budget expenditure (SPO, 2004). There is an ongoing debate about whether current public sector reform, that is aiming at decreasing the size of the public sector and increasing the productivity, should aim at introducing more flexible pay structures based on efficiency and merit to the public sector employees. Given the importance of the public sector and the current discussions on public-private wage gap and the depressing effect of this gap on private sector employment, little attention has been devoted to identifying whether the government-workers are paid more than private-sector. This study will be the first empirical analysis on wage structure of both sectors and shed light on public-private wage gap. It will also provide the necessary scientific input for running public sector reform. The aim of the study is to investigate empirically the wage gap structure in the private and public sectors in the North Cyprus. The analysis employs data from the recent (March, 2004) Household Employment Survey to study the wage differentials between the public and private-sector. Oaxaca and Ransom decomposition method is used to see what parts of the wages are due to the different levels of endowments and characteristics differentials. The rest of the paper is organized as follows. Following the introduction, section II gives background information about public and private sector employment. Section III is about general characteristic of public and private sectors’ wages and hours of work. Section IV presents the data and describes the methodology, and finally Section V presents the empirical results and the conclusion. II. Background The fall 2004 Household Employment Survey provided the following estimates for the 197256 people living in North Cyprus. Out of 150011 people (76% of the civilian population) at working age (15 and above) 82220 of them had a job during the reference week of the survey: 1 Assoc.Prof. in Economics, contact: sevin.ugural@emu.edu.tr 2 Assoc.Prof. in Economics, contact: fatma.guven@emu.edu.tr 3 Dr. nuru.giritli@emu.edu.tr