Public Service Compensation ? The Next Bubble? | Sustainable ...

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Since talking about ?bubbles? is in vogue these days (ie?oil bubble,?real estate bubble, post-secondary bubble, etc.) I figured I?d tackle the somewhat thorny issue that appears to be creeping up more?and more in this new era of austerity that we have entered in the Western World. The bubble I?m talking about of course is the public service compensation bubble. I want to point out that the views I express are not supported or indicative of those held by the owners of this blog in any way! I should state up front that I am a civil servant (teacher) and I definitely am benefitting from the current labour environment as a public employee.

Taxpayers = Golden Goose

In a recent survey put out in British Columbia, nearly 75% of the 804 people surveyed agreed that legislation that would limit the compensation of provincial and municipal employees to that of the private sector was a good thing. From my anecdotal experience, I would say that this view is held by many Canadians and that it is only going to get worse if many of the trends over the past couple of decades continue. The Globe and Mail also touched on the subject, and reported that in these economic down times, ?Public-sector hikes have outstripped increases in the private sector for the past four years, prompting howls of outrage from some who see them as examples of government excess.?

The Seesaw Is Stuck On One Side

The balance that has existed in the past between the compensation levels of private employees, and those of public-sector employees has clearly come undone in the minds of many Canadians. It used to be commonly known that while the public sector offered substantially better benefit packages, including items such as better pensions, more sick time, better holiday considerations etc., the private sector held advantages such as better pay, more opportunity for advancement, and other financial considerations. In doing a little keyboard research for this article I found varying positions supported by slanted research in a variety of ways. The one consistent finding in all of these reports however, was that public workers are simply doing better by pretty much any measure compared to their private counterparts. The real debate is by what degree this is the case and what effect could this have on the labour market in Canada.

Study Study On The Wall? Who?s The Most Accurate of Them All?

At opposite ends of the spectrum were a recent study done by the CUPE and a 2007 study done by Treasury Board of Canada (to me, the arguments are even more relevant now given the gains public sector employees have made relative to the private sphere). This isn?t surprising when you consider it is in the CUPE?s best interests to play down any differences in compensation levels that could be used to leverage their compensation packages down, and the Treasury Board represents the businesses that want to pay lower compensation levels and are sick of competing with the government they pay taxes to.

The Treasury Board released an 800-page study that said in 2003 the average salary of workers in the core public services was $53,000, and this increased to $73,400 when benefits were factored in. They also claimed that in the private sector, the average salary was $38,885. The report goes on to state, ?Exceptional bargaining strength derived from the privilege of serving the public should not justify going beyond what is reasonably comparable in equivalent circumstances in the private sector.?

Interestingly enough, even the CUPE study revealed that the public sector was better paying (although only by .5% overall). When taking into account all forms of public service compensation, the gap widens to 4.6%. These numbers are obviously the most beneficial presentation of statistics that the union could put together, and I would argue the real truth is probably somewhere between the two studies. Regardless of what the most accurate numbers would be, the very fact that the union that is in charge of lobbying for better compensation can?t figure out a way to hide the fact that the public-private balance has come unhinged is noteworthy in my mind.

So why should anyone care about who makes more in the public vs private sectors? The main reason why this is worrisome is that the private sector feeds the public sector and not the other way around. The innovation and efficiency that comes out of the private sector is what produces wealth in society and this is then taxed to provide services for everyone. If public sector jobs continue to become more and more lucrative, it will take away more and more of the top talent that the private sector needs in order to flourish. It will also encourage a much less competitive overall economy. Also, if you look at what is happening across Canada, whether it is teachers in BC and Ontario, or Air Canada workers, the bigger we allow the wage bubble to grown

I believe one of the main reasons that this bubble has been created is the difference between public unions and private unions. As you?ve probably come to realize, I lean a little right on most financial issues, but I?m actually a supporter of collective bargaining in the private sector. This is because the raw truths of the market force the employer and employee to work together for the betterment of everyone.

The perfect example of this is the history of the United Auto Workers in the USA. For many years this union fought for its share of the profits and their workers were compensated very well for their basic labour. When the auto industry almost collapsed in 2008, the union realized that times had to change, and they worked together with management to reduce compensation packages in order to make the business model effective again and consequently, to allow most people to keep their jobs (albeit at lower wages). When you compare that process to the recent public union showdowns here in Canada, the difference is stark. Public unions do not have to worry about their industry being effective, and the people they are negotiating with are not spending an owner?s money (it is all tax dollars). This has led to a tremendous imbalance in the system overall.

People should be justifiably upset that the public sector is doing so well in these lean economic times. The reality is that people in the private sector should make considerable more money on average because their jobs are usually much less secure, and because they operate in a competitive environment. If the public sector is allowed to keep racing ahead, the economic bubble will only grow. Want to see what happens when a civil servant bubble pops? Google ?Greece austerity riots.? I?d much rather gradually suck the air of the bubble now, than watch it pop in panic in a few years, and I think most Canadians would agree (as long as their personal paycheque wasn?t affected of course!).

What are your thoughts about public service compensation?

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