Tuesday, December 13, 2011

Battle of the Wages study dispels myths about public sector wages

By Toby Sanger 
Progressive Economics Forum
Click above for PDF
A comprehensive study released today by CUPE shows there’s no evidence public sector workers are paid consistently more than those in similar jobs in the private sector.

Instead, overall average pay in the public sector is remarkably similar when compared against similar jobs in the private sector: only 0.5 per cent higher.

This public sector pay premium can be entirely explained by a smaller pay gap for women in the public sector, partly because of stronger pay equity rules in the public sector.  Average pay for women in the public sector is 4.5 per cent higher than for women in similar jobs in the private sector, where the pay gap for women is considerably larger.  In contrast, men in the public sector were paid 5.3 per cent less on average than men in similar occupations in the private sector.

Pay in the public sector isn’t just more equitable for women: public sector pay scales are more equitable in all the dimensions we had data for: age, occupational group, and region.  These results were consistent for all levels of government.   Differences are especially significant at the top and bottom of the pay scales.
This means if public sector pay followed private sector standards as some business lobby groups and politicians have pushed, there would be little in overall savings, but inequality would increase across the board.
For instance, women would receive an average of ~$2,000 less per year, significantly increasing their pay gap.

This should be a real concern for everyone, not just public sector workers.   The IMF, Conference Board of Canada and the OECD have all raised concern recently about rising wage and income inequality damaging economic growth, as others have noted for many years on this blog and elsewhere.

While some business lobby groups, politicians and columnists have tried to create a politics of envy between workers, the real point isn’t who makes more: public or private sector workers.   The problem is that wages for most workers have been stagnant and are now declining in real dollar terms.

There’s significant correlation between public and private sector pay over time: we know that from wage bargaining.  It’s interesting to see that some in government have actually admitted it.  Both reports from the European Commission and Canada’s Associate Deputy Minister of Finance have stated that a major policy reason for constraining public sector pay is “to reduce undue upward pressure on private sector wages.”  (see footnote 12 in the report for more studies on this issue).

That’s right: governments are constraining public sector pay not so much to reduce deficits–they could reverse the corporate tax cuts to achieve that–but also to help suppress private sector wages.   And that’s why the CFIB has been pushing this with their own flawed  reports, so wages for their workers will be kept low and profits will rise.

This is exactly what our economy doesn’t need at this time.  Household finances are in a perilous state, our economy is suffering from insufficient demand, and businesses aren’t investing despite rising profits and having hundreds of billions of excess cash.  What we need is wage and income led growth and substantial public investments to keep the economy growing.

If there’s a battle between public and private sector workers over wages, it’s one that both sides lose–and that will cause even more damage for the economy.

There’s lots more in the report: a critique of the CFIB’s Wage Watch report, some information on the relative costs of pensions and benefits, and also a set of recommendations to reduce wage inequality.
This report, unlike most other comparative wage studies, provides data on actual average wages for specific occupations.

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