Repair Quebec’s finances by better controlling government pay

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Appeared in the Montreal Gazette, March 9, 2017

The Couillard government should be commended for its handling of the fiscal situation in Quebec since coming into power. As many governments across Canada remain mired in red ink, Quebec is poised to present another balanced budget this coming fiscal year.

This is positive news for a province that once had a reputation for being a problem child in Canada when it comes to public finances. However, the path forward will be challenging as much damage was done to provincial finances after several years of persistent deficits and growing debt.

To further repair Quebec’s finances and create the fiscal room for more competitive taxes, better control of government spending will be key in the years ahead. An important area to look for potential savings is the compensation of government employees, which consumes around half of what the provincial government spends each year.

And there’s ample reason to scrutinize compensation costs. While the government must provide competitive compensation to attract qualified employees, research shows that the wages and benefits of government employees tend to eclipse those for comparable private-sector positions.

A new Fraser Institute study spotlights the wage premium enjoyed by government employees in Quebec at all levels (federal, provincial and local). Using Statistics Canada data from 2015, the study finds that government employees receive, on average, 9.1 per cent higher wages than comparable workers in the private sector. This wage premium accounts for differences between individual workers in the two sectors such as age, gender, education, tenure, experience and type of work.

But wages are just one component of total compensation, which includes pensions, early retirement and job security. As any business-owner or manager will tell you, it’s the total cost of compensation that matters rather than the individual components. Yet even on various non-wage benefits, the available Statistics Canada data suggests government employees in Quebec come out ahead.

First consider the imbalance on pensions, one of the costliest benefits provided to workers in both sectors. In 2015, virtually all government workers in Quebec (98 per cent) were covered by a defined benefit pension plan—which guarantees a level of benefits in retirement—compared to just one of 10 workers in the private sector (13 per cent).

Government-sector workers in Quebec also retire, on average, 2.8 years earlier than private-sector workers and are away from their jobs for personal reasons 72 per cent more days per year (16.5 days vs. 9.6 days in the private sector).

When it comes to job security, another non-wage benefit, government workers have a distinct advantage. In 2015, 4.5 per cent of private-sector employment in Quebec experienced job loss—nearly eight times higher than the 0.6 per cent of government-sector employment.

So what drives this disparity in wages and benefits?

The reason is twofold. In the government sector, political factors largely determine the wage-setting process, while economic realities—productivity concerns, market forces, hard budget constraints—guide the process in the private sector. Moreover, the monopoly environment of the government sector amplifies these differences, compared to the competitive environment of the private sector.

This is more than just a fiscal issue. It’s about fairness, too. Why should government employees receive a premium paid for via taxes by private-sector workers who receive less for similar positions?

Taking the politics out of the wage-setting process will help level the playing field. This can be done by enacting measures that link the wages and benefits of government employees to similar positions in the private sector. Doing so would allow the Couillard government to better control spending, rein in debt, and maintain fairness for taxpayers who ultimately foot the bill.

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