The effects of public sector hiring and compensation policies on the Egyptian labor market

This article examines the combined impact of the employment guarantee for graduates and public sector compensation policies on the Egyptian labor market. Besides contributing to an unsustainable rate of growth in the government labor force, these policies have encouraged queuing for government jobs, contributed to high graduate unemployment rates, and reduced the employment of graduates in the private sector. Despite substantial wage erosion in the public sector in recent years, government wages, when appropriately corrected for observed heterogeneity and sample selection, are on a par with, or higher than, private sector wages, especially for graduates. When combined with the more desirable nonwage aspects of government jobs, these compensation levels explain the attractiveness of public sector employment to graduates. Government pay scales are especially advantageous to female secondary school graduates, who appear to face considerable discrimination in the private sector.