Government workers' compensation out of line with the private sector

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Appeared in the Calgary Herald

As Alberta’s provincial and municipal governments grapple with declining oil revenues and a weakening economy, a sober review of government spending should be part of any belt-tightening initiative. One place to start is the compensation of government employees, a key spending item for all governments.

Premier Jim Prentice has already said: “we have to deal with wages, initially”…“If you look at any form of public service, you can look at the settlements that were negotiated by previous governments in our province, they’re not sustainable.”

And it’s not just an issue for the provincial government. Municipalities also pay wages and benefits to government workers above those of comparable private sector positions.

This is about more than just economics. It seems entirely unfair to have government workers receive a premium paid for by private sector workers who receive less overall compensation while working at similar positions.

The traditional trade-off was that the government sector received lower wages than the private sector in exchange for more generous benefits. But as a recent Fraser Institute study reveals, that bargain has been undone. The government sector now enjoys a wage premium and likely more generous benefits.

Using Statistics Canada data from 2013 (the latest available), we found that the average wage in the government sector in Alberta, including federal, provincial, and local governments, is 6.9 per cent higher than the private sector after controlling for differences like education, the nature of the position, the experience of the workers, etc.

But total compensation includes much more than just wages; it also includes benefits such as health, dental, pensions, job security, etc. Unfortunately, Statistics Canada does not collect comprehensive data on non-wage benefits so it’s difficult to make a definitive statement about whether government workers enjoy more generous benefits than their private sector counterparts.

The best and most comparable available data nonetheless point to rather generous benefits for the government sector compared to the private sector.

For example, pensions are one of the costliest benefits provided to workers in both sectors. In 2013, 77.7 per cent of government sector workers in Alberta were covered by a registered pension compared to 21.8 per cent of private sector workers.

Also telling, among those covered by a registered pension, 97.4 per cent of government workers enjoyed the gold standard of pensions—a defined-benefit pension, which guarantees a certain level of benefits in retirement—compared to 38.9 per cent of private-sector workers.

More evidence from the available data: government sector workers in Alberta retire 1.3 years earlier, on average, than private sector workers.

When it comes to job loss, a proxy for job security, government workers have a distinct advantage. In 2013, 2.4 per cent of private sector employment in Alberta experienced job loss—four times higher than the 0.6 per cent of government sector employment.

A final indicator of the dramatic difference between the government and private sectors: the rate of absenteeism, the number of days lost per worker due to personal reasons throughout the year. In 2013, full-time employees in Alberta’s private sector were absent for an average of 7.3 days while the average government worker was absent 10.5 days.

Of course, governments need to provide competitive compensation to attract qualified employees. But the fact is government sector workers in Alberta enjoy higher wages than comparable workers in the private sector. They also, according to the available data, likely have more generous benefits.

As governments at all levels in Alberta struggle in the face of fiscal and economic challenges, policy-makers can control spending by ensuring government sector compensation broadly reflects private sector compensation for similar positions.

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