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 sector-specific job characteristics. A natural experiment the massive privatization process in post-Soviet countries allows correcting potential self-selection bias in a unique and nationally representative Ukrainian survey for the years 2003 to 2007. Unanticipated industry-specific privatization probabilities are assigned to workers based on retrospective information on their personal jobs held during Soviet times well in advance of the onset of the privatization process and the emergence of a private sector. The results reveal a causal public-sector satisfaction premium and suggest a negative selection of individuals into the public sector. Part of the public-private satisfaction gap can be explained by the different availability of fringe benefits in the two sectors.