In many countries, cuts in government employment are likely to increase wage inequality, reflecting the fact that wages tend to be more compressed in the public than in the private sector.14 Whether wage cuts are considered to be equitable depends also on relative wages in the government and the private sector (and, of course, the profile of wage costs across the public sector salary scale). The impacts on the economy’s supply potential are not clear. If public sector wages fall short of those in the private sector by a significant margin, cuts could result in retention and recruitment problems.