Public sector employment, compensation and transformation


Sunday, January 14, 2018

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No one could ever argue that public sector workers are being unreasonable in seeking a better wage offer than the Government has put forward. They had endured five years of wage freeze between 2010 and 2015, mitigated by a one-off payment of $25,000 and fringe benefits improvements as well as the annual 2 per cent increments earned for satisfactory job performance. They subsequently received increases of four and three per cent for the last two years respectively.

They are not alone in finding themselves casualties of the fiscal constraints that have bedevilled governments all over the world, especially since the global financial crisis of 10 years ago. Public sector workers in many countries have seen the purchasing value of their earnings decline as wage movements have fallen behind inflation.

Several countries like Spain, Italy, Greece, Ireland, Hungary and Portugal were forced to actually impose pay cuts and in some cases even pension payments were slashed by as much as 15 per cent. The United Kingdom and the United States instituted a three-year wage freeze and annual increases since then have been capped at around one per cent. The cumulative purchasing power loss for Jamaican public sector workers, however, has been particularly severe.

The Government's ability to improve its wage offer is tightly constrained by the economic programme to which the current and previous administrations are both committed, and which was endorsed by the public sector unions in the last two wage agreements of 2013 and 2015. The target of reducing the public sector wage bill to nine per cent of Gross Domestic Product (GDP) is more than just an International Monetary Fund (IMF) requirement. It is inextricably tied to the Government's ability to fund the investments in infrastructure and human resource development that are essential for sustained economic growth.

The current wage bill figure of over 10 per cent of GDP is higher than the average for all the regions of the world except sub-Saharan Africa. OECD countries, with their considerable wealth, are able to maintain a ratio of around 11 per cent.

That nine per cent figure remains the most elusive of the programme targets agreed with not just the IMF, but also with the other critical multilateral agencies. It was originally projected to be achieved by March 2016. That was subsequently put back to March 2019, a revised target date that even now is unlikely to be met.

Even with the present offer of six per cent increase over two years, the wage bill inclusive of increments would end up at 9.9 per cent of projected GDP by the end of the contract period in March 2019. Any further increase would push that ratio above 10 per cent, which is where it has been for the last 10 years.

The options available to the Government each have their own set of consequences. To accede to the demands of the workers would put pressure on the fiscal balance unless offset by additional tax revenue and lead to higher inflation, which is what has savaged their purchasing power. More importantly, it would undermine confidence in the economic programme with ripple effects in terms of investment and interest rates for both Government and private borrowers.

One alternative would be to reduce the size of the public sector in order to accommodate higher wages without imperilling the wage bill target. That, however, is much easier said than done. Teachers, security forces and health workers comprise almost two-thirds of the entire public sector workforce, and large-scale staff cuts there would have dire consequences for those vital sectors. Further, the upfront cost of redundancies would require several billion dollars that would have a catastrophic impact on the fiscal programme.

The civil service establishment, which constitutes just over 34,000 workers, accounts for less than one-third of the public sector wage bill. The rest is made up of teachers, medical personnel employed by the regional health authorities, Jamaica Defence Force (JDF) personnel and workers employed in local government and statutory agencies that are funded from the central government budget.

The average basic salary for those in the civil service establishment is slightly over a million dollars, but the median salary, — the price point that bisects the total number of civil service workers is $819,000. It is therefore no surprise that the civil service has difficulty in attracting and retaining the brightest and the best, and we owe a debt of gratitude to the bright and the good who enter and remain despite the unattractiveness of their remuneration.

As with so many of the country's other ills, the real solution to providing better remuneration for public sector workers lies in accelerating economic growth. Sustained robust increases in GDP will allow the nine per cent wage bill to provide robust increases in public sector wages. Public sector workers have a pivotal role to play in that effort.

The public sector regularly comes in for harsh criticism. Complaints of dereliction, delays and unnecessary bureaucracy in transacting business with government agencies are legendary. The broad-brush treatment is unfair. There are some agencies that have achieved and maintain a significant level of performance. I can attest to the fact that many of our civil servants are highly competent and professional. The deficiencies have more to do with the archaic structures within which they work and the misalignment of resources with objectives and outcomes.

The basic structure and culture of the public sector are rooted in the colonial administration established more than 100 years ago. Over the years, we have modified it, even bastardised it, and experimented with new arrangements, but there has been no fundamental transformation and its fitness for purpose has been eroded. The greatest deficiency lies in the fact that authority and responsibility do not reside in the same place.

People at various levels are expected to perform specific functions, but the authority to make decisions, apply resources, exert discipline and make operational changes where necessary in order to effect that performance — in a word, to manage — has to be sought from elsewhere, often a remote source not intimately familiar with the actual situation. Accountability is made virtually impossible and the public sector is deprived of the efficiency, smartness and agility needed to support a growth-oriented economy.

Resource allocation is another major issue. In many government agencies and departments, salaries and utilities account for more than 90 per cent of their budgets, leaving precious little to provide the materials and supplies they need to perform their duties and without which their workers may just as well stay home.

There are some government departments that are so far behind in the use of technology that the simple introduction of a desktop computer would be a major innovation. I recall an experience some years ago, long after computers became indispensable, when I went to a post office to collect my mother's pension payments after she was no longer able to do so herself. I waited for more than 20 minutes while the postmistress tediously thumbed through a huge hardcover book to locate the registered notice numbers.

The employment structure within the civil service is a mind boggler. The United Nations employs roughly the same number of people as we have in our civil service. Those are allocated among three groupings with a total of 23 classifications. In contrast, the Civil Service Establishment Order 2016 shows 83 groupings with a total of 401 classifications. These do not include teachers, nurses, JDF personnel, local government workers, and employees of statutory agencies.

Much of this has resulted from the various groups of public sector workers each seeking to secure its own separate identification and compartment, commonly referred to as “classification”. It renders staff management and control as well as wage negotiations a nightmare.

The Public Sector Transformation Programme, on which much design and preparatory work has been done, has been stymied by a number of factors. Firstly, there seems to have been an unwritten commitment given to the unions for accepting wage restraints that there would be no lay-off of public sector workers. Serious transformation cannot proceed with that as a precondition.

Secondly, the transformation programme is yet to address the culture change that is required. That change is virtually impossible without an amendment to Chapter 9 of the Constitution, which mandates procedures for the management and control of the civil service. Important provisions of that chapter are entrenched and any change would require a consensus between the Government and the Opposition that has not so far been able to overcome the political clout of the unions and public sector lobby.

A public sector that is efficient in its delivery of services and effective in its regulatory functions is essential to economic growth. If the economic programme is to succeed and all that is to flow from it is to flow, the transformation of the public sector has to be included among the priorities of priorities. It is the only sustainable way that public sector workers will be able to secure real improvement to their remuneration.

— Bruce Golding is a former Prime Minister of Jamaica

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