Ontario government should understand wage premium enjoyed by public-sector workers

Next month, in the Ontario Court of Appeal, the Ford government and Ontario’s public-sector labour unions will argue about the government's wage-cap legislation enacted in 2019.

In any discussion about government compensation, context is key. In 2022/23, the province’s net debt is projected to eclipse $400 billion (or almost $30,000 per Ontarian). And one of the ways the Ford government can help put Ontario on a more sound fiscal footing and prevent further debt growth is to restrain the growth of public-sector wages and compensations, especially because compensation consumes approximately 50 per cent of all provincial spending.

Of course, public-sector organizations should offer competitive compensation to attract qualified employees. But, to safeguard taxpayer dollars, governments must be careful not to pay above market rates. A recent study published by the Fraser Institute suggests that in Ontario, governments may be overshooting the mark.

The study, which compares all public-sector workers in the province, uses data on individual workers throughout 2021 (the most recent year of comprehensive data) and compares the wages of private and government-sector employees while adjusting for factors including age, education and employment industry. The results show that government workers enjoy a clear compensation advantage relative to their private-sector peers.

Specifically, the study found that government workers in Ontario enjoy a 10.9 per cent wage premium compared to similar private-sector workers.

The study also finds that government workers (on average) enjoy many other advantages. Let’s start with pensions. According to the available data, 83.9 per cent of government workers in Ontario are covered by a registered pension compared to 25.1 per cent of private-sector workers. Government workers were also much more likely to have a defined benefit plan that guarantees a retirement income.

Government workers also retire (on average) 2.5 years earlier than other workers in the economy. And enjoy more job security—in 2021, the rate of job loss in the private sector was much higher than it was for government workers. Finally, in 2021 fulltime government-sector workers in Ontario took more time off for personal reasons (14.0 days on average) than their private-sector counterparts (8.8 days).

Prudent public management requires careful attention to all major areas of government spending. The wage bill is no exception. The best available evidence suggests government-sector workers are, on average, significantly better compensated than their private-sector peers in Ontario.