Inequality indices, income shares and upper income groups in the public sector: surviving the crisis and the austerity measures.

Abstract: The paper documents development of income inequality in public sector using a panel of inequality measures and a unique dataset on monthly income of employees in 41 public sector entities in Latvia over 2006-2009. Calculated inequality measures are then used as dependent variables to analyze the determinants of changes in income inequality and in income distribution relying on OLS, IV-GMM and panel fixed effect IV regressions in empirical methods. The paper finds that in the public sector income inequality levels and dynamics differs a lot within two broad types of public entities, the state enterprises and public administration. Similarly, determinants of income inequality vary as well. The paper finds that income inequality in state enterprises is affected by external shocks (financial crisis, fiscal austerity measures), GDP growth and average wage growth rates, whereas none of these factors has an influence on income inequality in public organizations. This implies that most of the previous studies of determinants of income inequality that used country-level aggregate data might overestimate the effects of inequality determinants on income inequality in the public sector, and underestimate these effects on income inequality in the private sector.