Bringing government employee compensation in line with private-sector norms key for B.C. budget

During last year’s election campaign, and in his first full budget as premier, John Horgan (pictured above) promised to balance British Columbia’s operating budget. If his NDP government remains committed to this promise, the coming negotiations on compensation with 183 public-sector unions will be critically important.

After all, at $29.1 billion government employee compensation constitutes more than half of all provincial spending, so managing this area of spending is critical.

Thus far, the Horgan government has reached tentative agreements with a few public-sector unions. Details of these early agreements are not yet available but will set the tone for future negotiations. Restraint is both needed and warranted given that research consistently shows the wages and benefits of government employees tend to eclipse those of comparable private-sector workers.

A recent Fraser Institute study provides the latest estimates of the government wage premium in B.C. using Statistics Canada data, the study finds that government employees (federal, provincial and local) receive, on average, 7.4 per cent higher wages than comparable workers in the private sector in the province. This wage premium accounts for differences between workers in the two sectors such as age, gender, education, tenure, experience and type of work.

But wages are just one component of total compensation, which includes pensions, early retirement and job security. As any business owner or manager knows, it’s the total cost of compensation that matters not the individual components. Yet even on various non-wage benefits, the available data from Statistics Canada suggests that government employees in B.C. come out ahead.

First consider the imbalance on pensions, one of the costliest benefits provided to workers in both sectors. In 2015, nine of 10 government workers in B.C. (87.9 per cent) were covered by a defined benefit pension plan—which guarantees a level of benefits in retirement—compared to just one of 10 workers in the private sector (8.7 per cent).

Government-sector workers in B.C. also retire 2.5 years earlier, on average, than private-sector workers and they are away from their jobs for personal reasons 55 per cent more days per year (12.4 days vs. 8 days in the private sector).

When it comes to job security, another non-wage benefit, government workers have a distinct advantage. In 2015, 3.0 per cent of private-sector employment in B.C. experienced job loss—almost eight times higher than the 0.4 per cent of government-sector employment.

Of course, governments need to provide competitive compensation to attract qualified employees, but the fact is wages and benefits in the government sector are out of step with the private sector. So what drives this disparity in wages and benefits?

The reason is twofold. In the government sector, political factors largely determine the wage-setting process while economic realities—such as productivity concerns, profitability and resource constraints—guide the process in the private sector. Moreover, the monopoly environment of the government sector amplifies these differences compared to the competitive environment of the private sector.

Bringing government employee compensation more in line with private-sector norms is one way the provincial government could save taxpayer money and ensure equity for taxpayers who ultimately foot the bill.