Frederico Finan, Ben Olken, and Rohini Pande have an interesting paper on "personnel economics" which examined data from 32 countries. In particular, they find a significant wage premium associated with public sector employees, more so in developing countries, which have important implication on selection, incentive structures and monitoring. Some interesting graphics on premiums enjoyed by public sector workers.
1. The public sector pay premium is among the highest in India, at about 65%.
2. The public sector worker is 55% more likely to receive health insurance or other benefits, highest among all the sample countries.
3. The public sector workers are 48% more likely to receive pension benefits, again among the highest among all countries.
So here is the problem. The public sector employee in poorer countries enjoys a significant wage premium, is far more likely to enjoy health benefits and pensions, attracts the more educated, has a higher tenure. But this premium is not reflected in their performance outcomes.
The paper discusses the usual stuff about using screening applicants, and using incentives and monitoring to improve outcomes. I've blogged about this on several occasions and am not very sure about sustainable gains from these attempts.