Federal government should be skeptical of demands for large pay increases

In recent weeks, the perennially controversial topic of government-sector compensation has come to the forefront of government-sector management debates in Canada. Specifically, the Trudeau government is preparing for potentially tense negotiations with most of the unions representing the federal government’s workforce of 300,000 public servants, with the unions seeking much larger pay increases than we’ve seen for many years. Public Service Alliance of Canada (PSAC) is pursuing a strike vote and the threat of prolonged labour conflict looms.

Debates about compensation in the government sector are predictably fraught with emotion. After all, people’s wages are at stake. So, it’s important to take a step back and take a dispassionate look at the numbers to better understand how compensation levels in the government sector compare to the private sector across Canada.

Recent analysis by researchers at the Fraser Institute suggests that government workers enjoyed a significant advantage across several different dimensions of total compensation in 2021. The study controls for factors such as gender, age, education, tenure and industry to help generate an “apples to apples” comparison so government workers are compared to similar private-sector workers. The study compares workers at all three levels of government, which means it can’t directly provide a comparison of PSAC workers or other federal union members to private-sector counterparts, but it nevertheless sheds important light on current debates.

Let’s start by looking at the largest component of overall compensation—wages. The analysis finds that government workers across Canada enjoyed an 8.5 per cent wage premium, on average, compared to comparable private-sector workers in 2021. Governments could trim this advantage to help provide savings for taxpayers if governments are willing to exercise spending restraint.

The available data on non-wage benefits is imperfect, but what we do have suggests the government sector enjoys several other advantages. For example, 86.6 per cent of government workers are covered by registered pension plans compared to 22.9 per cent of private-sector workers.

In addition, government workers generally retire earlier than those in the private sector. The average gap is 2.4 years. In 2021, job security appears to have been better in the government sector. In fact, only 1.0 per cent of those employed in the public sector experienced job loss, far lower than the private-sector equivalent (4.8 per cent).

Finally, fulltime workers in the government sector took more time off in 2021 for personal reasons (14.9 days on average) than similar private-sector counterparts (9.8 days).

Of course, unions will point out that there has been inflation since 2021 when the data we have analyzed was collected. However, inflation seems to be cooling from its peak, weakening the case for large increases in future years.

It’s vitally important for governments across Canada to pay competitive prices for government workers to ensure we have people who can develop sound policy and deliver high quality public services. But it’s also important to protect taxpayers from rapid wage bill growth that must ultimately be paid for through their taxes. The data presented here doesn’t provide a final word on how the government should respond to wage demands from PSAC or other government workers, but it does show that in general government workers earn more than their private-sector counterparts and should make the federal government look skeptically at claims that large increases are needed to keep the government competitive as an employer with private-sector firms.