Fraser Forum

Giving large pay increases to government workers will harm Ontario’s finances

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Giving large pay increases to government workers will harm Ontario’s finances

As the Ford government continues negotiations with public-sector unions, it should understand that acceding to union demands—while politically popular in some precincts—would make it very difficult for Ontario to be prudent with provincial finances.

The province currently projects an $8.1 billion budget deficit in 2023/24 and mounting debt in the years ahead. With the recent rise in interest rates, borrowing money has become more expensive for the Ontario government. Efforts to curb spending and return to balanced budgets must involve limiting increases to or even reducing the compensation of government employees.

Traditionally, the trade-off for government-sector workers has been to receive lower wages than the private sector in exchange for more generous benefits (i.e. pensions) and job security. However, a recent study published by the Fraser Institute shows this is no longer the case. Government-sector workers in Ontario currently earn higher wages and enjoy greater benefits than comparable workers in the private sector.

Specifically, according to the latest Statistics Canada data, government wages in Ontario were 34.4 per cent higher, on average, than wages in the private sector in 2021 (the latest year of available comparable data). After adjusting for differences such as age, gender, education, tenure, type of work, industry and occupation, government employees are still paid 10.9 per cent higher wages.

But wages are only part of overall compensation. Government workers across Ontario also enjoy more generous non-wage benefits, too. For instance, more than four out of five government workers in the province are covered by a registered pension plan—compared to just one in four in the private sector.

Moreover, nearly all government-sector workers covered by a pension plan enjoy a defined-benefit pension, which guarantees a certain level of benefits in retirement, compared to only 36.9 per cent of private-sector workers.

Also telling, government employees retire 2.5 years earlier, on average, than their private-sector counterparts. And on job security, government workers also have a distinct advantage. In 2021, 5.5 per cent of private-sector employees experienced job loss in Ontario compared to only 1.3 per cent of government workers.

Government-sector workers also enjoy a higher incidence of personal leave than private-sector workers. Fulltime workers in Ontario’s government sector were absent due to personal reasons an average of 14.0 days throughout the year compared to 8.8 days for private-sector workers.

Of course, the Ontario government must provide competitive compensation to attract and retain qualified employees. However, we cannot ignore that government-sector workers in the province already enjoy higher wages than comparable private-sector workers and appear to have far more generous benefits as well.

For the Ford government to balance its budget and reduce debt in 2023 and beyond, it must exercise better control of spending. To accomplish this, it must keep the growth of the government wage bill in check and reduce the wage premium enjoyed by government-sector workers.

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