Public vs. private sector

Let’s take a look at the difference in income of salaried workers in public vs. private sectors. Like last posting, I use the data from Household and Budget Survey in 1999 in urban areas.
A salaried worker in private sector earns about 10.7m Rials and spends about 23.9m Rs. Public sector workers earn more and spend more (18.3 and 39.9m respectively). But the percentage difference of income and expenditure for private sector is slightly more than that of public sector (122% for private sector vs. 112 for public sector). These numbers almost reject my hypothesis of “hidden” rent in public sector. There are some rents in public sector but it is not hidden. They simply get more money and similar to their counterparts in private sector have other sources of income.
One concern about the difference between income in public and private sectors is that the percentage of higher educated workers is higher in public sector than private one. Only 15 percent of college graduates work in private sector. Considering that 54 percent of salaried workers are in private sector it is clear that college graduates are more interested to public sector. Taking education into account, the data reveals the same result for non-college-graduate workers but not for college graduates. Public sector pays more to less educated workers (16m vs. 10m in private sector) but interestingly, slightly less to educated workers (22.4m vs. 22.2m in income and 56m vs. 50m in expenditures).
While my theory that there is a “hidden” rent in public sector is rejected, the above discussion support “transparent” transfer from government to its employees. This transfer in the case of highly educated workers is simply offering a job to them with almost the same salary as their counterparts in private sector but in the case of less educated workers, it appears as high wage rates. If we assume that private sector pays as much as the marginal productivity, then government payment system is not efficient.
This result may change slightly with entering other variables like experience and more precise measures of education but I believe that the core will remain untouched.

Self employed and salaried workers

A working person in Iran may work for himself (self employed) or for others (salaried). Also some people have income from other sources (including retirement payments, investment income, and so on). I wonder if there is any evidence that one of them earn more? For this, I looked at the data of Household Budget and Income survey 1999. The data includes 12682 individual level observations of people only in urban areas. For the type of job I look at the job of the head of the family but the income and expenditure are those of whole family.
About 20 percent of observations have income from only the sources other than their job as self employed or salaried. Of course some of those have job have also income from other sources. Of the rest (10090 obs.), about 46 percent are self-employed and 62 percent are salaried (and the difference from 100 percent belongs to those who have job of both types).
Those who have income only from other sources have the least income (8.6m Rials annually). [Exchange rate for Rial vs. USD is about 9600 Rials per Dollar now, and in 1999 it was about 9000 Rials per Dollar]. Self employed workers earn 19.4m and salaried are paid about 13.4m.
But this is income. If we take a look at the expenditures the picture is slightly different. The average annual expenditure of a household in salaried category is about 30m Rials. Compared with the income, expenditure is 127 percent more. A huge gap. This number for those who have only self-employed job is about 92 percent more and for those who have job in both groups is about 78 percent more. More interesting, those who have job neither as salaried nor self-employed, consume more than 218 percent more than what they earn. So everybody seems to have more expenditures than income. Is there any explanation for this finding?
One clear explanation is issue of the rental value of houses. If somebody has a house, the rental value of the house is considered as the expenditure. It blows up the expenditure, but of course not as much as the above numbers.
The other explanation is the misreport of income. The difference between income and expenditure is partly because of misreport of income. Salaried workers usually report what they get “officially” as salary and forget about the rest. Also self employed people have incentive to underestimate and misreport their income mainly regarding the tax issue.
But the difference between above percentages shows different behavior among different groups. Those who don’t have jobs set aside, the difference is more for salaried workers. Maybe they have more sources of income for them. It can be due to some part time jobs they have without reporting it. It seems reasonable especially when we see that the gap for those who have reported having jobs of both type is well below than that of those who declared only their salaried jobs. (78 vs. 127 percent).
But it can be also for rents in some part of salaried jobs: public sector jobs. I should look at more detailed data later.