Who gets paid more, public or private sector workers?

The Fraser Institute has issued a spate of reports claiming public sector workers are overpaid. How much credibility do these have?

Very little, it turns out.

There are three major ways of comparing pay and compensation levels, going from the very detailed to much more general, and flexible, calculations.

The most accurate involve comparing very specific occupations in the public sector with similar occupations in the private sector.  The only study of this type routinely and comprehensively done in Canada is by the Institut Statistique du Québec.  Its most recent analysis for 2014 found that Quebec government employees were paid on average 8.4 per cent less than their counterparts in the private sector.   When pensions, benefits and working hours are taken into account, total compensation for is comparable, just slightly below comparable private sector employees.

The next most accurate calculations involve comparing average wages by occupation and other relevant variables using the most detailed aggregate data and occupational groups available. In Canada, the Census/National Household Survey (NHS) provides data at the level of 500 different occupational groups, the most detailed available.  Analysis using these data has been conducted by the Canadian Federation of Independent Business (CFIB) on one hand and by CUPE and the Canadian Centre for Policy Alternatives (CCPA) on the other.

The CFIB’s analysis using 2006 Census/NHS data included serious errors (outlined in CUPE’s Battle of the Wages and elsewhere) and it appears they are no longer doing this analysis. CUPE’s analysis using 2006 Census data found that public sector workers were paid on average 0.5 per cent more than similar occupational groups in the private sector.  However, this premium was entirely because there was less of a pay gap for women in the public sector.  Men in the public sector were paid on average 5.3 per cent less than men in similar occupational groups in the private sector. In fact, pay scales in the public sector are more equitable than in the private sector by all different aspects: gender, age, region, and occupation.  This is the consequence of both higher unionization rates in the public sector, but also because stronger pay equity legislation and political considerations ensure public sector pay scales are more equitable than the increasingly inequitable pay scales of the private sector.

Further analysis using 2011 Census/NHS data by the CCPA found that public sector workers were paid on average about 2 per cent more than those in similar occupational groups in the private sector, but once again this is because of a smaller pay gap for women and also considerably smaller pay gaps for aboriginal and racialized workers compared to the private sector.  Men in the public sector were paid on average 1.5 per cent less than those in similar occupational groups in the private sector.   Since 2010, base wages in the public sector have increased by about 2 per cent less than the private sector, so overall average wages are now likely to be very similar.

The Fraser Institute reports use Labour Force Survey data that include just 25 occupational groups, far fewer than the 500 included in Census data and so it is considerably less accurate. While this type of method using econometric analysis takes account of a number of other variables (age, education, gender etc) that can affect pay, whether other variables are included or not can have a significant impact on the results. For instance the Fraser Institute analysis doesn’t account for aboriginal or racialized worker status, whose pay gaps are very different in public and private sectors.

In addition, by having broad occupational categories and not accounting for selection or the level of responsibility involved in a job, their analysis effectively considers police officers and security guards as equals. Because of the broad occupational categories involved in the Labour Force Survey and flexibility involved in econometric analysis, results using these methods have come up with very different results: higher wages in the public or private sector depending on what’s included in the analysis.

The bottom line: The real point for workers shouldn’t be whether public or private sector workers make a few bucks more at any one point in time, although these comparisons always come into play during labour market contract negotiations which keep wages relatively equal between sectors. The real point should be that average wages for all workers have barely kept up with inflation while top incomes and corporate profits have skyrocketed. And using the highly inequitable pay scales of the private sector as a norm for the public sector will just make the situation worse and suppress wages and benefits for all workers—which is exactly what the well-paid executives of the Fraser Institute and the CEOs they represent want.

In brief:

  • “Deeply troubling”: That’s the title of an analysis of the Harper government’s plans to double the amount that can be sheltered in Tax Free Savings Accounts. Simon Fraser University professor Rhys Kesselman says it would be extremely regressive, highly disproportionately benefiting top income and wealth holders. It would eventually deplete federal revenues by $15 billion a year: eating “everyone out of house and home” and make the original tax break even worse, making it Double Trouble. Ottawa’s Parliamentary Budget Officer agrees in a separate analysis, calculating it would cost the federal government $14.7 billion and provincial governments another $7.6 billion annually and that it would make the tax break “much more regressive”.
  • Corporate profits hit another record. Profits of Canadian corporations hit a record $355 billion last year, 8.7 per cent above their take in 2013, even though they declined in the 4th quarter. This works out almost exactly $10,000 for every single Canadian. This sounds great, but don’t expect a cheque anytime soon. The benefits of these profits are concentrated among a few and the average tax rate they pay on those profits was only 18.3 per cent, a third lower than the average rate in the dozen years up to 2000. Banks and financial corporations took about a quarter of the total, followed by manufacturing, trade, construction and then oil and gas. Air Canada’s profits soared by 56 per cent to $531 million.
  • Women have the numbers, but not the power. Women now make up a majority of public sector workers, but still lack the power men have. Research by Marika Morris and Pauline Rankin at Carleton University found that while women represent 55 per cent of all federal public sector workers, they represent 45 per cent of all executive positions below the top level and just one-third of deputy ministers. But just as women are reaching the top, the influence of even top public servants in Ottawa is diminished, as power is increasingly centralized in the Prime Ministers Office.
  • Public servant morale and engagement down. The federal government’s Public Service Employee Survey found that employee satisfaction, engagement, and resources available had deteriorated since the last survey. Only two-thirds felt they had the support needed to provide a high level of service, down from 75 per cent three years ago, fewer felt they had adequate support to maintain work-life balance and almost half said having to do more with less affected the quality of their work. About one-fifth reported they had experienced harassment in the past two years.
  • Shifting economies. Ontario, Manitoba and British Columbia will lead economic growth in Canada this year, benefiting from the decline in oil prices and lower dollar: growing by almost 3 percent in real terms, according to the latest provincial forecast by the Conference Board of Canada. Quebec, PEI, Nova Scotia and New Brunswick are expected to grow by about 2.3 per cent, Saskatchewan by less than one percent, while both Alberta and Newfoundland and Labrador are expected to decline.

All content: Toby Sanger, Economist, CUPE National. @toby_sanger tsanger@cupe.ca

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