Back to main menuPublic Sector Pay in NZ
Is public sector pay really 25% higher?
New research co-authored by Motu Senior Fellows Dave Maré and Dean Hyslop finds the headline gap between public and private sector pay largely reflects differences in the jobs, not the sectors.
Official statistics show average pay in New Zealand's public sector is 25% higher than in the private sector. That figure is widely quoted and widely misunderstood. This research shows the raw comparison is misleading, because public and private sector jobs are quite different.
What we did
We examined the pay gap from four angles, each using a different data source and method.
First, we used Household Labour Force Survey (Income) data to decompose the raw hourly wage gap into components linked to observable differences in jobs and workers. Second, we used administrative data to distinguish pay differences associated with workers from differences due to the firms they work for. Third, we tracked earnings changes for workers who switch between public and private sector jobs. Finally, we used proprietary job evaluation and remuneration data from Strategic Pay to compare pay for jobs of similar size and content across the two sectors.
What we found
The four analyses tell a consistent story. Once we control for differences in jobs and workers, the sectoral pay gap is much smaller. In fact, our most detailed like-for-like comparison shows public sector jobs are paid less than comparable private sector jobs.
After adjusting for observable job differences, for worker and firm characteristics, or for workers switching sectors, the public sector pay premium falls from 25% to between 5% and 8%.
The job evaluation data sharpen the picture further. In these data, the raw public sector premium is about 6% in base salary and 3% in total remuneration. Once we control for job size, the premium disappears. Comparisons based on the most detailed job information, available for jobs evaluated with Strategic Pay’s SP10® job evaluation methodology, show public sector jobs are paid 4% less on average than comparably sized private sector jobs. The private sector premium is even larger for remuneration beyond base salary, for men, and for larger jobs.
Key findings:
Comparing raw averages is misleading. Public and private sector jobs differ substantially, and the two sectors occupy largely distinct occupations, so simple comparisons conflate pay differences with job differences.
The public sector has few very small jobs. This alone pushes its average pay upward.
Large private sector jobs pay more than public sector jobs of similar size.
Small public sector jobs pay slightly more than similar-sized private sector jobs.
The gender pay gap is smaller in the public sector.
Why it matters
Debates about public sector pay often start from the 25% figure. This research shows that figure says more about the mix of jobs in each sector than about how generously either sector pays. Job evaluation data, which allow the most detailed like-for-like comparison, suggest the raw public sector pay premium is more than accounted for by differences in the mix of jobs, and the private sector pays more than the public sector for comparable jobs.
DOI - 10.29310/WP.2026.08
Citation
Maré, David C, Dean Hyslop and Lyn Brieseman. 2026. “Public Sector Pay in NZ". Motu Working Paper 26-08. Motu Economic and Public Policy Research. Wellington, New Zealand
Funders
The Treasury
