We need an adult conversation on public sector compensation

Printer-friendly version
Appeared in the Huffington Post

With governments collectively racking up almost $46 billion in deficits last year and continuing to struggle with health care costs as the population ages, both governments and citizens are concerned that tax dollars are spent wisely.

One of the major costs for governments is the compensation of public sector workers. That’s why we recently released a series of papers comparing wages and benefits in the public sector with the private sector. Unfortunately, the issue of compensation differences often gets lost in name-calling and ad hominen attacks. Canada needs a real debate on government spending and how to solve our deficits and debt rather than a contest of who can scream the loudest.

Our study, which relies on previously-published academic papers and widely accepted approaches to measuring differences in wages, calculated that on average, public sectors workers in Canada receive a 12 per cent wage premium compared to similar positions in the private sector. The analysis relied on Statistics Canada data from the monthly Labour Force Survey (LFS) and controlled for a host of factors such as gender, age, work experience, tenure in position, occupation, industry, and union status.

In addition, our work also examined differences in non-wage benefits like pensions. In 2011, 88.2 per cent of the public sector was covered by a registered pension compared to 24.0 per cent of the private sector. Of those public sector workers covered by a pension, 94.0 per cent were covered by a defined benefit pension, which means they were guaranteed a benefit (i.e. income) in retirement. Just 52.3 per cent of private sector workers who were covered by a pension enjoyed such a benefit. Not surprisingly given the difference in pensions, public sector workers retired earlier than workers in the private sector.

There are 3.6 million public sector workers in Canada and 74.5 per cent of those are unionized. One of the most powerful and vocal unions in the country is the Canadian Union of Public Employees (CUPE). Paul Moist, CUPE president, has been one of the harshest critics of our work. Unfortunately, his opposition to the study is both misinformed and worse, based largely on fiery rhetoric and name-calling.

Of all the criticisms raised by Moist, only one is legitimate. It is the question of using the LFS versus the Census, which is what CUPE relied on in a recent study. (It also found a wage premium in the public sector but a smaller one than we calculated).

The sample in the LFS is smaller than the Census but still contains nearly 53,000 Canadians. Additionally, the LFS is the main source for a wide-array of labour statistics regularly used by government bureaucrats and economists. If there is a sampling problem with the LFS, it affects more than just our study.

At the same time Moist ignores or is unaware of a major deficiency in the Census when trying to compare public and private sector compensation: it doesn’t ask respondents whether they work in the public or private sector. Without such information, researchers must make an educated guess about who are public and private sector workers based on the industry they work in and their occupation. For example, under the CUPE approach, somebody who works at BC Hydro could incorrectly be considered in the private sector.

Additionally, the CUPE study excludes large job classes like teachers. The rationale is that such occupations reside almost exclusively in the public sector. The data tells a different story. More than 11 per cent of students in British Columbia, for example, attend independent schools and are taught by teachers outside of the public sector. Coincidentally, this is a job in which public sector workers enjoy a wage premium.

Moist has also repeatedly stated that our work ignores occupations. Had Moist actually reviewed our response or examined the LFS survey, he would find it includes 25 occupational classes (based on the 2006 National Occupational Classification).

It’s also interesting to note that a 2000 study by the University of Toronto’s Morley Gunderson, a leading researcher in this field, along with his colleagues, used both the LFS and Census data to compare wages in the private and public sector. They calculated an average public sector wage premium of roughly nine per cent using both data sources.

There is no doubt that governments across the country are struggling with deficits and increasingly need to examine current spending to ensure value-for-money. Persistent wage and benefit premiums in the public sector is something governments will have to tackle eventually. Having an informed, mature debate about the subject is a starting point. We welcome such debate but unfortunately, Mr. Moist’s approach is none-of-the-above.

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.