Public Service Compensation – Really So Bad?

Earlier this week Teacherman wrote about whether or not public service compensation is the next “bubble” to burst. In the article, which I thought was excellent, TM, a civil servant himself, argues that public service compensation is “racing ahead” and the great gains public servant in Canada are achieving need to be curbed now, not later.  TM makes some valid points, however, there are a few points where we do not see eye to eye.

Full disclosure: Mrs. SPF and I are public servants in the province of Ontario.  Our livelihood, like TM, is intrinsically dependent on the public service compensation our employer provides.  Additionally, elements of our compensation, like health benefits and a defined benefits pension plan are key parts of our future personal financial plan.  Like TM, I will endeavour to not impart personal bias when discussing the subject of public service compensation.

Teacherman sites two studies in his article (CUPE and Treasury Board).  These (typical) studies on this topic leverage statistics which can be selectively adopted based on the driving interests of the organization that produced the analysis while ignoring extremely important comparison considerations. This goes for both sides of the argument. When it comes to statistics I agree with Mark Twain (who attributed 19th century British Prime Minister Benjamin Disraeli): There are three kinds of lies: lies, damned lies and statistics.”.

Treasury Board compares the public service compensation of federal employees to those of the public sector. CUPE is a union that represents workers in health care, education, municipalities, libraries, universities, social services, public utilities, transportation, emergency services and airlines (really?).

CUPE’s take on public service compensation

First, women in the public sector earn 4.5% more than women do in the private sector while men in the public sector earn 5.3% less than private sector counterparts.  In August of 2011 the Federal Office of the Chief Human Resources Officer reported that:

The overall “wage gap” between men and women in the public service, calculated as the difference between the average salary of all men and the average salary of all women regardless of the group or level they belong to, has decreased from 17.7% in 1999-2000 to 10.9% in 2009-2010.

For public servants under the age of 35, where women and men with higher education levels are recruited into higher paying jobs, the gender wage gap is lower at 3.5%.

In the private sector, this report tells us the gap is over 18%. Equal pay for equal work amongst the sexes is important and the private sector has not kept pace with this basic tenet of equality in Canada.  The public service also allows for women to be better compensated for the skills they provide to their employer.

Second, lower paid occupations (cleaning, food preparation, clerks) are paid more than their private sector counterparts while high paid occupations (managers, lawyers, accountants) are paid considerably less than their private sector counterparts. Which brings me to …

Interestingly enough, even the CUPE study revealed that the public sector was better paying (although only by .5% overall). When taking into account all forms of compensation, the gap widens to 4.6%.

A consultant that shares my profession that is brought in (private sector) on contract to work for government receives double my public service compensation.  

When I look at other analysis tools, such as the IT Canada 2012 salary report (this is data collected by voluntary user submission) and enter in my profession and location I am quickly shown that the 2012 average compensation was up 6% last year while the average additional cash compensation to those in my profession saw and additional 6.7% (bonus!).  This bonus is telling as it appears my profession gets a hefty cash bonus each year – but not where I work – so that the average salary with included cash compensation is likely higher in private sector as public service compensation does not allow for cash bonuses as far as I know.

Regardless, the bonus is 11.5% of the average salary. Most public servants I know who do the work I do will not see such a large cash compensation this year or any time soon.  And 11.5% does dwarf 4.6% as reported by CUPE.

The reality is that people in the private sector should make considerable more money on average because their jobs are usually much less secure, and because they operate in a competitive environment.

The clumping of the public service or private sector into one aggregate is problematic.  As CUPE noted, various professions are going to earn differing pay scales.  Some jobs take more education, experience or knowledge than do others.  This is reality.  Where I work food service and cleaning tasks are outsourced privately (via a competitive process).  Other positions that traditionally kept the average public service compensation at a lower number, such as traditional clerk work, are being phased out via service location consolidation, automation and transformed process efficiencies.  

The jobs simply are not the same so I feel there is a comparison of wages from professions across sectors that do not match up.  Our economy has also been reducing the “good” jobs in the private sector at an alarming rate.  The local hardware store is gone (along with the decently paid jobs they provided) and we are served by Canadian Tire or Walmart employees who don’t see similar compensation. The North American economy has a widening gap between “good” and “not-so-good” jobs and the pay gap widens.

Additionally, while Canada does sport numerous resource based jobs the economy is transitioning to service based. Perhaps this is part of the problem – the reduction of producing things to sell while increasing information and service businesses. Usually, those who receive public service compensation are not creating goods and the world economy has dictated that there has been a paradigm shift in the valuation of work.  We are not going to see $30/hour private sector service positions and the days of lucrative manufacturing jobs are gone.  Ian said it as well as I could in his comment in the original public service compensation article.

In the private sector the median wage is crashing compared to GDP as wealth is concentrated to a smaller number of people. I don’t think this trend will reverse itself anytime soon as long as we have free trade and our manufacturers are competing against countries with lower standards for human rights and the environment.

If we want to discuss job security one must take a look at the recent 2012 Canbadian Federal budget and ask the 19,000 or so public servants who were issued pink slips just last week, or will soon.  Their union apparently can’t do anything about these job cuts, so where exactly is the job security?

The next statement I want to examine is the following:

“If public sector jobs continue to become more and more lucrative, it will take away more and more of the top talent that the private sector needs in order to flourish.

This doesn’t appear to be the case!  The folks who hold occupations like engineers, management, legal, IT and financial experts still flock to higher paying private sector opportunities for employment.  Obviously government needs to streamline, improve, reduce redundancy and trim waste. Who do you prefer work on these objectives?  Folks with solid skills, experience and talent, or, people with lesser skills, experience and talent?  Should the people in the public service striving to improve flock to higher paying jobs? Should tax payers accept marginal talent running services and managing critical information?

How about those teaching our children? Enforcing the laws, criminal and otherwise? Prosecuting crime? Assisting Aboriginal communities? Regulating health care, heck, providing health care! Keeping an eye on industry to ensure compliance that adheres to the will of the public? Overseeing important infrastructure projects? Inspecting food? Monitoring water quality? I can go on and on and on … but I will ask again, do we really need to drive all of the talent solely to the private sector? At what detriment?

Where exactly should the transfer of talent occur?

Lastly,

“The main reason why this is worrisome is that the private sector feeds the public sector and not the other way around.”

“it’s a parasitic relationship, not really a symbiotic one.” (response to a comment)

Where do public sector employees ultimately spend their money? Two places I can think of: first and foremost, the private sector and second, taxes, which effectively contribute to their own salaries.  The public sector not only supports the private sector financially with earned money it enables industry to operate within the confines of the laws of our provinces and nation.

Reduce the public sector and expect slower reactions to much needed economic prosperity. Reduce public service compensation and expect less money to pump into the economy.  Offer less money and watch a skilled worker “brain drain” occur, once again, in medical and IT fields.  And as mentioned, expect less improvement in government process and efficiency which ultimately cost the private sector and the public more money and taxes.  

We can’t have our cake and eat it too.

To sum up (finally!) …

By simplifying aggregated salary numbers into an apples versus oranges discussion the true analysis of the wage “gap” between private and public sectors is diluted, and in my opinion, driven by media and some fear-mongering.  To rile people up.  A closer investigation will show that if you were to take only the professions available in the public sector, looking at the same number of jobs for each profession, I am certain the pendulum would swing back to the side of the private sector.  The professions offered in each sector are not the same across the board to permit a true evaluation of this particular subject.

Sure, 1000 sanitation staff in public sector likely make more money than 1000 of their counterparts in the private sector.  Equally as important, 1000 lawyers in the private sector likely make much more money than 1000 of their public sector brethren.  Since the public sector does not have nearly the proportion of lower paying jobs as does the private sector it is evident that the salaries are now almost equal. The problem however is that there is no study I know of that neutrally looks at the question by analysing all the possible jobs (in equal total number of jobs) in the public sector and compares them to those in the private sector.  This is the study I would like to see, not the partisan government or union reports.

Remember Disraeli … “There are three kinds of lies: lies, damned lies and statistics.”

Different strokes for different folks.  Please discuss.  I am open to differing opinion and encourage discussion and debate!

22 comments to Public Service Compensation – Really So Bad?

  • I am with you SPF. The pendulum can swing both directions. I too work in the public sector and could actually make more working in parts of private sector if I wanted to if you look at the salary numbers alone. However when I calculate the benefits of my pension and other perks, there isn’t as much of a discrepancy. In other parts of the private sector, I wouldn’t make as much. It really changes company to company. Like you, I would like to see a neutral comparison that evens out the evaluating factors so we could see if things really are that different. I find that depending on the qualifications of the individual things can really change from one place to the next.

    I also think cost of living scews these numbers. Minimum wages are different based on how much it costs to live in a place. The minimum wage influences salaries for educated people meaning that you could work in the public sector and be paid one rate and get paid a different rate if you worked somewhere else in the public sector. Like you said, it’s apples and oranges.

    • I do value my pension and benefits but I know full well that the money I could make consulting, given it is double my daily salary, would more than make up for it and then some (a lot!). We’re talking hundreds of dollars per day.

      • So, what makes you stay where you are then? If the private sector offers so much more money, why don’t you switch?

        I have the same situation. I could actually make more consulting and probably still make up my pension and other benefits but I have stayed in government for now. To me it feels more stable. I have never been cut or laid off whereas friends of mine in the private sector have. I work in health care so maybe that scews things a bit. Health care is an essential service and is often not cut. It is also supported and always be supported by the government.

        • Ultimately, it comes down to more than just money for us Miss T. We really do enjoy our jobs and the feeling we get knowing we are working to make Ontario a better place. Since we work to manage/administrate the provinces natural resources we get a lot of fullfillment from working to save little critters and provide out of doors experiences for citizens in our province.

          So yes, we could make more money! But I don’t need more money. We do not live in luxury but we are comfortable as 2 people who work in our professions would either private sector or public. Honestly, I do not think the model of paying tons of money for private consultants is in the best interest of Ontarians. To pay 200%-250% more for these services simply to appease the masses infatuation with government “salary” while turning a blind eye to total resource expenditure does not make sense to me – but the masses will see what they want to see: total salary spent on XXX number of employees.

          • I am with you there. Where you work and what you do also play a role. I need to be passionate about what I spend my time doing and I have to believe in the cause. I guess that’s why I have stayed in health care this long. I find it rewarding.

  • Consulting is expensive even in the private sector. We often have consultants at our office (technology) and consultants always get paid more than a full time employee. The benefit for the company is that it doesn’t come with the cost of benefits, vacation and such. So I am not sure consultant comparison is valid – it’s the price you pay for having a specific need at a specific time. Consultant will usually take a pay cut to get a full time job with benefits. Usually, if one spouse has benefits, the other spouse can rack it up as a consultant if they can afford the up and down of the income.

    • Agreed PIE. Thing is, the government works with a vendor of record list and those, and only those, can get government contracts (well, in Ontario). Therefore, the same companies are re-used and folks working for these companies can find a lot of opportunity.

      The discussion is so often on public service compensation while the consultant salary numbers are largely ignored.

      Ultimate government must become more efficient.

      As I mentioned, both Mrs. SPF and I have the same employer. I could opt to consult. A topic for another day (it is on the list, promise!).

  • Hey SPF, great article! It think where we fundamentally agree is on the role of government. You stated that, “The public sector not only supports the private sector financially with earned money it enables industry to operate within the confines of the laws of our provinces and nation.

    Reduce the public sector and expect slower reactions to much needed economic prosperity. Reduce public service compensation and expect less money to pump into the economy”

    I think that reasoning is faulty. By definition the public sector cannot possibly produce wealth. Wealth is only created by the private sector, and then taxed to provide the services that we all know and love, and government also provides a method to redistribute that same wealth to some degree. Therefore, when you say that public employees support private industry, all you are really referring to is cycling private industry’s originally created wealth back to them. A smaller government by definition would have to get more efficient and I think this is a good thing.

    I also think you are severely overestimating the impact of 19000 jobs lost, CUPE membership listed at over 600,000 on their website, and the Liberal government of the mid-nineties cut almost 3x this many and we all seemed to survive just fine. This is in no way to compare to the huge cuts private industry has had to soak up in much of Canada (see: Ontario manufacturing).

    The bottom line for me is that given all the intangibles that come with employment for the government (including a great union bargaining position relative to our private brethren) we need to bridge the compensation gap going forward.

    • I guess I just think this is an apples to oranges comparison in so many cases. The private sector is full of jobs that are low paying, and I hate to say, but often do not need a lot of education/training/knowledge that you often find in public sector positions. The thousands of fast food positions just don’t exist in government and as such taking all of those jobs’ low salaries and aggregating them out against jobs that require more education/knowledge/skill in the public sector just doesn’t add up.

  • Sam

    What are your thoughts about making the bigger bucks in the private sector, and then downshifting and working in the public sector? That way, we can do both and get a pension!

    • I’ve seen this trend in the executive ranks Sam. Folks make a great amount of money privately then later in their careers they take a pay cut to be a COO or CIO in government, stay employed the minimum number of years to qualify for the benefits, and then retire. The pension is nice for these folks but I think the benefits packages is the hook. The pension is based on number of years served (usually 30+) so the savings these folks had prior to public service is the nest egg, the pension will likely be peanuts when compared directly. But the benefits (health, dental) can be very enticing. I know the CIO of my organization came from the private sector as did the head of my division.

  • Frank

    100k for teachers in Ontario? Please…. only public servants think there is no discrepency. Public unions should be abolished and services should be privatized. You can almost bet with certainty that in 20-25 years defined benefit pension plans will no longer exist as we know them. You are overpaid, deal with it.

    • Those who form the young minds and leaders of tomorrow should be paid minimum wage. We should double the salaries of private sector financial types that created the global economic crisis. CEOs don’t make nearly enough money. Walmart greeters should take over for doctors and government should be 100% privatized (including politicians!).
      Uh huh.

    • Everyone has a right to their own opinion Frank. Do note that the proportion of teachers (or other “workers”) compared to management who make over $100k is still extremely large.

  • Andrew F

    I’m a lot less worried about underpaying public sector workers versus overpaying them. When you have long queues of qualified applicants looking to get into the public sector, you are likely overpaying (at least on total compensation). No one really seems to connect these dots.

    If, on the other hand, we were to underpay public sector employees, we would have a hard time hiring and retaining them. A business case could be made to increase compensation in order to reduce other costs (recruitment, training of new hires). I’m more comfortable relying on the second force. I’m not sure it’s in society’s best interest for the government to be out-bidding the private sector for talent.

    • I don’t think the positions where the “talent” resides is overpaid in the public sector. Yes, there are a lot of applicants for the positions but this is usually due to extra benefits and the perception of job security. As I note in the article, in my field (IT) there are also massive queues for positions in the private sector where the pay is much, much more than the public sector IT person would make. Again, it comes down to comparing apples to apples. A person with a Masters or PHD in say aboriginal studies just won’t find much work in the private sector – the place jobs for people with the “talent” associated with this type of degree reside in the public sector. So naturally this “talent” has to go to where the work is.

  • Ex-public worker

    @Teacherman: I disagree with your opinion that the public sector creates no value. First, value is created every time a road is opened, police services are rendered and fire is suppressed. Absent centralised (aka community) services like this, business could not operate as we know it. Just make a tally of the cost to a business for security (real one, not make-beleive rent-a-cops) and having paved roads between you and your clients and you eclipse what it pays as taxes, levies, etc.

    Another axis of public wealth creation: welfare (as in -queen). Yes, I chose this one carefully because of it’s status as “entitlement” whipping-boy. Yes, it’s money taken from your hard-working-man paycheck and given to somebody that is not currently working. Yes, it does not put more money in the economy. BUT: just as businesses constantly cry for a “stable environment”, normal people will hold less back if they know they have the basics to fall back to. So: more people blazing trails, and a part of them will create value and successful businesses or ventures. Also, we have a saying here: “beware a man that has nothing to lose”.

    The perfect small-governement paradise exists in many places in this world; but the results are less than optimal. Here are some examples with money allocated to government and CIA world factbook comments:
    Burma (3.9% of GDP, 213 of 213), ” Despite Burma’s emergence as a natural gas exporter, socio-economic conditions have deteriorated under the mismanagement of the previous regime. Approximately 32% of the population lives in poverty and Burma is the poorest country in Southeast Asia.”
    Guatemala (11,8% of GDP, 205 of 213): “While CAFTA-DR[free trade within Central America] has helped improve the investment climate, concerns over security, the lack of skilled workers and poor infrastructure continue to hamper foreign direct investment.”
    And I jumped over all the real anarchic countries where no government is controling, because civil war does not count as an economy. For a quick reference, Canada is at 38% of GDP, in 56th place.

    As for public wages being too high, I have first-hand account that my personal income(which is less than what I charge) went up 50% since I left for consulting. After taking into account that my old pension and other perks were valued at 30% of salary, you can see I am NOT losing on this. Also, since I am currently selling my services through intermediaries to the government, it is paying around double what I would have cost at the top of the scale as an employee. Are you getting more for your tax dollar now?

    Oh, and a quick tip: my old job is still vacant after a couple years, so feel free to help yourself to a ‘lavish pay package’. All you need is to be nominally qualified (a BS or MS) and be ready to start at the bottom of the pay scale regardless of experience (which is a secretary-competitive salary, yay!).

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