Getting a grip on public sector wages

March 29, 2011

Michael Warren

The Conservatives' election budget includes $11 billion in undisclosed program cuts.
If they win, the extent of these cuts could be draconian. Whoever wins, rigorous
restraint is inevitable.

This means a heap of pain for all of us over the next four years. Some of this
suffering could be eased if the next federal government got serious about eliminating
civil service compensation premiums.

Recession-weary Canadians are tired of seeing their public sector counterparts
enjoying higher wages, more job security and bountiful benefits.

Don't be surprised if during this election, we see demands that federal employees
shoulder their fair share of deficit reduction.

Before the 1990s, government compensation in Canada lagged behind the private sector.
But over the last two decades public sector unions have used our growing dependence
on their services to drive their members' compensation to questionable heights.

The most recent study that compared public with private sector salaries and benefits
for the same occupations was carried out by the Canadian Federation of Independent
Business (CFIB) in 2008.

It found federal employees took home 15.1 per cent more in wages than those doing the
same job outside of government. When the value of their benefits, such as platinum
pensions and disability, life and medical insurance, were added, their total
compensation was 23.1 per cent higher.

Provincial employees enjoyed an average total compensation premium of 14.8 per cent,
including benefits. The compensation of municipal workers was 14.2 per cent higher.

Not surprisingly, union leaders dismissed these results. They argued that the CFIB
methodology was flawed.

But they offer no evidence to challenge the conclusion that large public wage and
benefit premiums are being paid by all levels of government.

They argue their higher compensation strengthens our middle class, so it should
continue unquestioned.

The disparity in pensions is particularly disturbing. More than three-quarters of
government workers in Canada have pension plans that guarantee them fixed payouts for
the duration of their retirement. Less than a quarter of regular workers have any
form of employer-funded plans. The rest have to fend for themselves.

Things have worsened during the recession. To survive, most employers have been
forced to become leaner, more productive and creative. Workers are being pressed to
do more with less. More than 8 per cent of them remain unemployed, and many more
underemployed.

But not so in la la land. Instead, our governments have been steadily adding
employees. And they are raising average earnings in order to deliver the same or
fewer services.

Despite the tough talk emanating from Ottawa, provincial capitals and cities, they
collectively hired 5.8 per cent more public sector workers last year. We are left
paying billions in additional taxes so the growing numbers who serve us can continue
to enjoy higher wages and benefits.

Achieving federal compensation parity would go a long way toward filling Stephen
Harper's $11-billion budget black hole - and lessen the impact of coming restraint on
the rest of us. Direct program spending at the federal level this year is forecast to
be $120 billion. About half that, $60 billion, will go to wages and benefits.

If even half of the CFIB federal premium of 23.1 per cent were eliminated by the end
of this year, the savings would be almost $7 billion. This isn't possible to achieve
in one year. But it is both possible and reasonable to use parity-driven collective
bargaining and arbitration to realize this magnitude of savings over the next four
years.

How did these premiums become so widely and deeply embedded? It began with
governments allowing their pre-1990 compensation shortfalls to swing quickly to
parity - and then to premiums over the private sector.

We rely heavily on publicly delivered services. As a result, fire, police and other
services have been legislated as "essential." Their right to strike has been
replaced by a very expensive arbitration process.

But we can still be held hostage by other quasi-essential public sector workers from
garbage collectors to postal workers. And if they strike, and are legislated back to
work, arbitration is once again the only settlement remedy.

Eliminating public compensation premiums begins with reforming the arbitration
process. Arbitrators are reluctant to roll back gains won in previous agreements.
Instead, they are pressured to stack one high compensation precedent on another.

Two changes would help bring back public-private sector, equal pay for equal work:

There is a need for more comprehensive, timely and independently developed salary
and benefit data on the hundreds of comparable jobs that exist in both sectors. This
data should be made readily available at the bargaining table and to arbitrators.

When a dispute goes to arbitration, the government involved needs to give clear
direction. Arbitrators should be required to demonstrate in their decisions that they
have given full consideration to equality of compensation for comparable jobs in the
private sector.

Public sector unions facing this equal pay criterion may be less inclined to hold out
for arbitration, and more inclined to resolve differences at the bargaining table.
Over time this could help to bring public and private sector compensation back into
balance.

When GM and Chrysler were facing bankruptcy, the Conservatives insisted that the
compensation of their workers be brought into line with others in the industry before
they would invest taxpayer billions to save their jobs.

Why haven't they taken the same stance with their own workforce?

R. Michael Warren is a corporate director and public affairs commentator.

r.michael.warren@gmail.com<r.michael.warren@gmail.com>