Fiscal deficits and external debts have placed public sector employment and compensation under scrutiny as developing countries confront the economic crises of recent years. Although much attention has been given to the overall problem of growing public expenditures, there have been few research efforts addressed to a basic question: Do public sector workers with the same productivity traits earn more than their private sector counterparts? Surprisingly, there is little systematic empirical evidence on public-private sector pay comparability in developing countries, and most of the existing findings show mixed results in terms of both direction and magnitude of wage differentials. This study considers how wage differentials between male wage earners in the two sectors are generated using recent data for Peru. The paper finds that government workers do not enjoy a "pure" wage advantage or economic rent if selectivity corrected estimates of wage functions are compared. In fact, in metropolitan Lima, public sector wages are well below those in the private sector, while in other urban areas there is no significant wage differential. The estimation procedure and results of this study should prove useful for formulating wage and employment policies in developing countries