Is the Public Sector Losing the Battle for Talent? Evidence from Long French Panel Data

Abstract We exploit an exceptionally long administrative panel dataset (1988–2019) for France to estimate the unconditional quantile effects of public sector employment, while accounting for individual fixed effects. We find that the public sector wage gap is broadly negative across the whole wage distribution after controlling for observable and unobservable heterogeneities. The public sector compresses the wage distribution, with particularly large wage penalties observed at the top. This compression effect is partly concealed by the incidental parameter bias, which we correct using a split-panel jackknife method. We document how a combination of political and business cycles aligns with the evolution of the wage gap over the thirty-two-year period. Despite offering lower pay, the public sector attracts individuals with, on average, better observed and unobserved skills. However, this skill gap narrows significantly over time and vanishes among top earners, calling for policies to restore the attractiveness of public sector management careers.