Government compensation outpacing the private sector in Ontario

The Ontario government is currently neck deep in negotiations with public sector unions including those representing bureaucrats, teachers, and police officers.

On compensation costs, finance minister Charles Sousa said: “We must continue to provide for net zeros in the negotiations… to ensure that we continue to curb our spending.”

As Sousa’s government stares in the face of a $12.5 billion deficit and mounting debt, any belt-tightening initiative must involve the compensation of government employees, which consumes more than half of provincial government program spending.

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 unfair for government workers to receive a premium paid for by private sector workers who receive less overall compensation for similar work.

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, on average, government workers in Ontario at the federal, provincial, and local government levels receive 11.5 per cent higher wages than comparable workers in the private sector.

This wage premium accounts for differences in the personal characteristics of workers such as differences in education, the nature of the position, and a worker’s experience.

But total compensation includes much more than just wages; it also includes benefits such as pensions, health, dental, and job security. 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, 77.3 per cent of government sector workers in Ontario were covered by a registered pension plan compared to 25.6 per cent of private sector workers.

Also telling, among those covered, 97.1 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 just 46.9 per cent of private-sector workers.

More evidence from the available data: government sector workers in Ontario retire 1.4 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, 3.8 per cent of private sector employment in Ontario experienced job loss—nearly five times higher than the 0.8 per cent of government sector employment.

A final indicator of the dramatic difference between the government and private sectors: the rate of absenteeism. In 2013, full-time employees in Ontario’s private sector were absent due to personal reasons an average of 7.2 days throughout the year while the average government worker was absent 10.4 days.

Of course, governments need to provide competitive compensation to attract qualified employees. But the fact is government sector workers in Ontario 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 Ontario struggle to balance their budget, better control of spending is needed. In light of ongoing collective bargaining negotiations, now is an opportune time to ensure government sector compensation broadly reflects private sector compensation for similar positions.