Private vs. Public Sector: Exploring the Major Differences
By Indeed Editorial Team
Published 18 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
There are opportunities in both the public and private sectors to consider when seeking employment. While the public sector provides services to the public, the private sector focuses on the interests of individual organisations and their stakeholders. Understanding the differences between the public sector and private sector can help you determine which of the two suits your interests best. In this article, we discuss these two sectors in detail, provide examples of organisations in each sector and summarise the fundamental differences between them.
Private vs. public sector
When comparing the private and public sectors, it can be helpful to learn more about them. Below, you can find out more about the differences between them.
The fundamental differences between the two sectors
Organisations within the two sectors have several fundamental differences, which include:
One of the major differences between the public and private sectors is who owns the organisations within them. Public sector entities are part of federal, state or local government, and the department head or CEO generally reports to the responsible minister. This includes state-owned enterprises, which function as businesses while being owned by the government. Individuals, private companies or groups of private investors own and manage businesses in the private sector.
Businesses in the private sector exist to make a profit for their owner(s) or shareholders. Public sector organisations provide the machinery of state and exist for the benefit of the public. State-owned enterprises are agencies of government which function as commercial businesses with a profit motive, with that profit being returned to the government as owner.
Public sector organisations are government-funded. These funds may come directly or indirectly from taxes. In the private sector, organisations fund themselves from revenue, bank loans or by raising capital through selling shares to the public. Private companies must meet a range of criteria before becoming eligible for raising capital from the public.
The public sector comprises many essential jobs that are required for the health, safety and productivity of the community. Jobs in this sector are taxpayer-funded. Because of this, the growth of jobs in this sector correlates to the state of the economy. Public sector employment can offer a range of attractive benefits, although there may be a cap on earning potential. In the private sector, the business's profits pay for its employees' salaries. Because of this, private sector employment may offer less stability, but also the capacity for a greater financial reward with no cap on earning potential.
One of the fundamental differences between the two sectors is the industries in which they operate. There is generally little overlap between the services provided by government agencies and private sector companies. In many cases, government agencies have a monopoly on the provision of particular services, as this is determined by law. Where government agencies don't have a monopoly, for example the provision of education, they are generally the regulating authority under which private sector organisations must operate. Both private and public sectors employ people from a range of professions, including lawyers, teachers, accountants and architects.
Examples of businesses in the private sector
Below, you can find a few examples of types of private sector businesses:
Sole proprietorships include unincorporated businesses that are typically owned and operated by an individual. The owner of a sole proprietorship is called a sole trader. Some examples of these kinds of private businesses may include florist shops, mechanics and beauty salons.
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When a business has two or more owners and operators, it's called a partnership. In a partnership, the owners share any profits derived from the business. Law firms, medical and dentist practices, and financial planning companies can be good examples of businesses that are often partnerships.
Small and medium-sized businesses
These types of businesses are identifiable by their revenue, assets and number of employees. According to the Australian Bureau of Statistics (ABS), a small business employs fewer than 20 people and a medium business employs 20 to 199 people. The Australian Tax Office (ATO) defines small businesses as those with a yearly income that doesn't exceed $10 million.
Companies and corporations
A company or corporation represents a legal entity separate from its owners. According to the ATO, a large corporation is an entity included in an economic group with a collective income of over $250 million. A multinational corporation has operations and assets in more than one country. Some of the world's most well-known companies and brands serve as examples of large corporations and multinationals.
Professional and trade associations
Professional and trade associations exist to help particular groups of people, typically based on their profession or industry. These businesses usually provide their members with professional services and the opportunity to network with other professionals in the field. The Australian Bar Association (ABA) is an example of a professional association for lawyers. ABA sets the legal standards and serves lawyers' interests.
Trade unions are organisations created by individuals working in the same profession or industry. The purpose of a trade union is to safeguard and enhance trade union members' rights. Trade unions are prominent in the education, health care, hospitality and public administration industries.
Examples of organisations in the public sector
Below, you can find some examples of types of public organisations:
Government agencies are owned and funded by the government. They can include federal, state and local government agencies. Some examples of government agencies are the Australian Taxation Office, the Australian Human Rights Commission and the Australian Communications and Media Authority.
The government creates public sector businesses, also known as public purpose corporations, to serve the public. They are generally non-profit businesses. Some examples of special-purpose corporations can include state libraries, housing authorities and legal aid.
The federal and state governments can create business entities which partake in commercial activities on their behalf. In Australia these are generally known as government business enterprises (GBEs). The government can have full or partial ownership of such businesses. Some examples of state-owned businesses are Australia Post, Forestry Corporation of New South Wales and Queensland Rail.
Employment in the private sector
Australia's Fair Work Act specifies the mandatory minimum terms of employment for all employees, regardless of which sector they are employed in. In addition, collective bargaining has created numerous collective contracts and awards that apply across industries in both sectors.
Here is a list of reasons people may choose employment in the private sector over the public sector:
Choice of profession: Jobs in some professions or industries may only be available in the private sector, for example hospitality and manufacturing. This means the private sector can provide a wider range of employment opportunities. The job diversity in this sector can cater to individuals' varying interests.
Higher salary: Private sector employees often have a higher salary and more chance of receiving pay rises when compared to public sector employees. This can be because high-level jobs in the public sector have income caps, unlike their private sector counterparts. However, public sector agencies have to compete with the private sector to secure employees in a number of professions.
Training and networking: Private sector organisations are often able to provide better training and networking opportunities to employees, including international travel to conferences and conventions.
Employment in the public sector
Here is a list of reasons people may choose employment in the public sector over the private sector:
Job stability: Because organisations in the public sector tend to not experience market pressure, employees in this sector may enjoy more job stability. Public sector organisations provide essential services for which there's a consistent demand, for example, health care, which promotes job security further.
Opportunities to serve the public: Some people choose to work in the public sector to contribute positively to their community. Often, public sector jobs focus on improving the lives of others, which can appeal to some individuals more than roles focused on creating profits.
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None of the companies mentioned in this article are affiliated with Indeed.
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