Public and private sector jobs, unreported income and consumption gap in India: Evidence from micro-data

• Paper documents presence of unreported income for public sector employees in India.
• Investigates wage gap and consumption expenditures for public and private sector workers.
• Public sector workers earn less but durable consumption is like private sector workers.
• Investigates other explanations including job contracts, social security, and schooling.
• Top-tier wage gap gets weaker with social security but rises with education.

This paper documents the wage and consumption gap between private and public sector employees in India. We empirically investigate the wage gap as well as difference in consumption expenditure using household survey from the 2004-05 National Sample Survey of India. Our results show that despite a lower level of public sector income in some of the income quantiles, the consumption of durable goods is not different between these two groups, statistically. After checking for competing explanations, we conclude that the absence of statistically significant consumption gap could be an outcome of ‘unreported’ income earned by public sector workers in India.