The compensation gap; why it pays to be a government worker in BC

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Appeared in the Business Examiner

More than three years after the end of the recession and British Columbia’s provincial government continues to struggle with deficits, which as of the last quarterly update will likely exceed $1.5 billion. Relying on revenues to rebound enough to catch up with spending just doesn’t work as BC’s own history aptly demonstrates. Similarly, municipalities across the province continue to struggle to find sufficient resources for infrastructure needs while balancing their books.

If the provincial and various municipal governments in BC are serious about tackling deficits and prioritizing resources, they must review and reform spending. A central part of any such initiative must be reviewing public sector wages and benefits to ensure they are comparable with private sector equivalents.

There are both economic and fairness issues to consider in ensuring that compensation in the public and private sectors are roughly equivalent for comparable positions. Principal among these many considerations is the fairness of having those in the public sector receive a premium paid for by those in the private sector who receive less overall compensation for similar positions.

The traditional trade-off was that the public sector received lower wages than the private sector but that this was offset by more generous benefits. As our analysis of Statistics Canada data reveals, that bargain has been undone such that the public sector now enjoys a wage premium and more than likely, more generous benefits as well.

When we compare the average wage in the public sector in BC, including federal, provincial, and local workers, it is 37.5 per cent higher than the private sector. However, this figure doesn’t account for differences like education, the nature of the position, the experience of the workers, etc. Once we control for these factors, the average wage premium enjoyed by the public sector is 13.6 per cent compared to their private sector equivalents.

Of course compensation includes much more than just wages. Part of employee compensation is based on benefits, including health, dental, retirement savings, job security, etc. Unfortunately, Statistics Canada does not collect comprehensive data on benefits like their counterpart in the U.S. so it’s difficult to make a definitive statement regarding whether or not the public sector enjoys better or more generous benefits than their private sector counterparts.

The data that is available, however, for comparable benefits between the two sectors indicates a fairly generous benefits package for the public sector compared to the private sector.

For example, one of the costliest benefits provided to workers in both the private and public sector is retirement pensions. In 2011, the latest year for which comprehensive data is available, 89.8 per cent of public sector workers in BC were covered by a registered pension compared to 19.4 per cent of private sector workers.

More revealing of the premium enjoyed by the public sector versus the private sector is the type of pension available. For those covered by a registered pension, 95.6 per cent in the public sector enjoyed defined-benefit pensions (i.e. guaranteeing a certain level of benefits in retirement) in 2011 compared to 49.3 per cent of private-sector workers.

Another benefit for which comparable data is available and in which public sector workers enjoy a premium is the age of retirement. Regardless of whether the average or median age of retirement is used, public sector workers enjoy an earlier age of retirement in BC (indeed across the entire country) compared to their private sector counterparts. Specifically, on average, public sector workers in BC retire almost three years earlier than private sector workers. (The gap jumps to 4.2 years if the median rather than the average is used.)

A final metric by which to understand the non-wage benefits enjoyed in the public sector compared to the private sector is job losses. This measure is a good proxy for job security, which has always been seen as an advantage for the public sector over the private market. In 2011, 4.3 per cent of private sector employment in BC experienced job loss. This is more than seven times higher than the 0.6 per cent of public sector employment experiencing job losses.

Public sector workers in BC clearly enjoy higher wages and, more than likely, more generous benefits than comparable workers in the private sector. As British Columbians struggle with their deficits and spending, it is imperative that comparable compensation for the public sector become part of the solution rather than part of the problem.