Job Satisfaction and Self-Selection into the Public or Private Sector: Evidence from a Natural Experiment

Are public sector jobs better than private sector jobs? To answer this question, this paper investigates observed differences in job satisfaction between public- and private-sector workers and disentangles the effect of worker sorting from the one caused by sectorspecific job characteristics. A natural experiment —the massive privatization process inpost-Soviet countries—allows correcting potential self-selection bias. Industry-specificprivatization probabilities are assigned to workers based on unique individual-level surveyinformation regarding pre-determined Soviet jobs during the 1980s. The results reveal acausal public-sector satisfaction premium and a negative selection of individuals intothe public sector. Part of the public-private satisfaction gap can be explained by thedifferent availability of fringe benefits in the two sectors.