We develop an experimental paradigm to study the incentives-based productivity gap between the public and private sectors and the role of public sector mission. We distinguish the two sectors by their respective incentive power. Participants in the experiments engage in a real effort task and are paid according to their performance: In one sector, the ‘private’ sector, remuneration is more sensitive to individual performance than in the other, ‘public’ sector. We find that the private sector is more productive than the public sector, induces more effort and attracts higher ability workers. We then incorporate an intrinsic reward in the public sector, described in our settings as mission—by generating donations to a preferred charity for any output made in this sector. Our results show that public sector mission induces a transition of workers from the private to the public sector. We also find that public sector mission decreases the productivity gap and mitigates both the incentivizing and sorting effects. In the public sector, mission increases average productivity, induces more work time and attracts high ability workers. Public sector mission has no effect on average productivity, work time or average ability in the private sector.

It has been shown in a laboratory setting (Ravid et al.,2017) that job satisfaction in the public sector is negatively correlated with economic cycles. We analyze data from a real-world panel survey—The German Socio-Economic Panel—in order to confirm the results found in the lab. The results also indicate that men respond more strongly to the effect than women. Several studies on other types of gender differences strengthen the plausibility of this result. We therefore conduct a revised laboratory experiment with a different real-effort task in order to test whether there is an underlying basic difference between the genders and to explore possible underlying mechanisms. The experiment simulates an economy with two sectors differing only in their remuneration scheme. Economic cycles are introduced in order to test for their effect on job satisfaction and productivity in each sector. We include a new stage that simulates a two-provider household, in which one contributes more than the other to the salary pool. Participants also complete a series of tests in order to determine their competitiveness level and social value preferences. The results show that women have higher job satisfaction and are less competitive than men, which is in line with previous results in the literature. In addition, the results reproduce the main result observed in the previous experiment, namely that job satisfaction in the public sector is countercyclical. However, we surprisingly do not find any correlation between the countercyclical effect and gender or with any of the other tested variables (provider status, social value orientation and competitiveness level).