Factors Associated with Wage Inequalities Among Paid Workers

Abstract

The call for decent wages without any form of discrimination and the justification of the level of wages paid to employees, whether in the private or public sector and to males or females, is ever loud today, even in developing countries. This is particularly important since any form of wage inequality reflects economic inequalities and may further exacerbates households’ income inequality. This study therefore sought to contribute to the literature on the determinants of wages in the Ghanaian labour market; estimating the private-public sector wage gap and to understand the factors associated with public sector employment. The study was guided by a cross-sectional descriptive research design; employing quantitative methods to establish the drivers of wage inequalities among paid employees in the Greater Accra Metropolitan Area (GAMA). The study used the Blinder Oaxaca decomposition method to estimate sector-wage gap, the Heckman two stage model to establish the determinants of public sector employment, and probit regression to find the factors associated with wages in Ghana using an analytical sample of 876 wage workers drawn from the seventh round of the Ghana Living Standards Survey (GLSS 7) data. The results indicate that private sector workers earn relatively lower wages than their counter-parts with the same level of human capital in the public sector. However, the wage gap becomes statistically insignificant when observed among formal private and formal public sector wage workers. Also, gender, age, education, sector of employment, and formalization of employment (formal/informal dichotomy) contribute significantly to the wage levels of workers in Ghana. It is imperative for the Government of Ghana through the Ministry of Employment and Labour relations to deepen compliance to the labour laws in the private sector to ensure fairness since the returns to education are higher in the public sector and for males due to the huge informal nature of the private sector – which is female dominated and whose employers barely comply to labour regulations.