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Chapter 2. Benchmarking and Trends

Author(s):
Natalia Tamirisa, and Christoph Duenwald
Published Date:
January 2018
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Comparison with Global Peers

Public wage bills in the MENAP region are higher than in other emerging market and developing economies (Figure 2.1).1 During the past decade, these economies2 spent on average 6 percent of their GDP a year on general government payroll—equivalent to a fifth of their total expenditure.3 In the same period, public wage bills represented 28 percent of total expenditure in the MENAP region. Public wage bills in the Gulf Cooperation Council (GCC) countries and Algeria were 3.6 percentage points of GDP higher than the corresponding emerging market and developing economy average and exceeded wage bill averages for fuel exporters from other regions. In MENAP oil importers, wage bills were 2.3 percentage points of GDP higher than in emerging market and developing economies. By contrast, wage bills in CCA oil exporters (16 percent of expenditure) were below those in emerging market and developing economies and other comparator groups, while wage bills in CCA oil importers were broadly comparable to the emerging market and developing economy average.4

Figure 2.1.General Government Wage Bills, 2005–16

(Percent of GDP, period average)

Sources: IMF, World Economic Outlook; and IMF staff estimates.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

Governments in the region are larger employers than their peers in the rest of the world (Figure 2.2). Public sectors in emerging market and developing economies, on average, account for 9 percent of total employment and provide jobs for nearly 5 percent of the working-age population. By contrast, public employment in most countries in the region is well above these levels—every fifth job is in the public sector, and average public employment in percent of working-age population is nearly double the average in emerging market and developing economies (13 percent in the CCA and 9 percent in MENAP). Public employment in the region’s oil exporters, for the most part, also exceeds the respective average for oil exporters outside the region.

Figure 2.2.Public Sector Employment, 2005–16

(Percent, period average)

Sources: National statistics; International Labour Organization; and IMF staff calculations.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

Several MENAP countries have large gaps between public and private sector compensation (Figure 2.3). The average public sector wage premium—the amount by which public sector wages exceed those in the private sector when controlling for skills and education—in emerging market and developing economies is nearly 12 percent (IMF 2016a).5 The few available estimates of true wage premiums (with controls) for the MENAP region are positive, except for Egypt. Average public wages in the GCC and Morocco are about 2–3 times higher than average private sector wages. (The gap in the GCC countries is highest for expatriates, whereas for nationals it is typically about 30–50 percent.) These gaps would probably be even higher if substantial nonwage benefits in the public sector, such as various allowances, retirement benefits, and job security were included—information that is generally not available.6 On the other hand, public sector workers in the CCA, non-GCC oil exporters, and Mashreq oil importers (Egypt, Jordan) are on average paid less than their private sector counterparts, although the reverse might be true if benefits could be incorporated.

Figure 2.3.Public-Private-Sector Wage Gaps

(Percent, latest available)

Sources: Country authorities; national labor surveys, and International Labour Organization. Data for Morocco from World Bank 2011.

1 Numbers represent wage premium estimates obtained after controlling for employee characteristics (IMF 2016a).

Diversity within the Region

Differences in public wage bills across the region are significant (Figures 2.4 and 2.5).7 For example, in the GCC, Saudi Arabia’s wage bill of about 13 percent of GDP is more than double the public wage bills in the United Arab Emirates and Qatar. Among non-GCC MENA oil exporters, Iraq’s public wage bill also exceeds 12 percent of GDP and is significantly higher than that of Iran. Public wage bills in Morocco, Tunisia, and the West Bank and Gaza are more than double what they are in Jordan and Sudan. The Kyrgyz Republic’s wage bill is much higher than in the rest of the CCA.

Public employment and compensation also vary considerably (Figures 2.6 and 2.7):

  • Differences are most significant in the GCC and Algeria. Public employment levels in Algeria and Saudi Arabia are among the highest in the world, accounting for over a third of total employment. In addition, in Saudi Arabia, the public-private wage gap (over 150 percent) and the overall wage bill are above average, much higher than in Algeria (Jewell 2014: 16–17). Kuwait’s public payroll is higher than Bahrain’s because of both higher employment (18 percent of total employment) and wages (the public-private wage gap is 245 percent). This is even more noticeable within the labor market for nationals in the GCC, where government employment as a share of the national labor force exceeds emerging market and developing economy averages by a wide margin—particularly in Kuwait (84 percent), Qatar (80 percent), and Saudi Arabia (66 percent). In other GCC countries, public employment levels are moderate (less than 10 percent of total in the United Arab Emirates), but the gap between public and private sector wages is very high.
  • In MENAP oil importers, countries with high public wages relative to private wages employ fewer civil servants but have higher overall wage bills. High average public-private wage gaps make for expensive public payrolls Morocco and Tunisia relative to those in other countries, despite a moderate share of public employment in total employment (15 percent and 9 percent, respectively). Although public sector jobs in Egypt and Jordan account for a significantly higher share of total employment (25 and 36 percent, respectively), they typically pay 20–30 percent less than in the private sector.8 This places these countries’ wage bills below those in Morocco and Tunisia. Standing out from its regional peers, Djibouti’s public sector employs a considerably larger part of the labor force (46 percent in 2015) with a relatively high positive public wage premium (21 percent).
  • In the CCA, public sectors in oil exporters account for a larger share of total employment than in oil importers, despite similarly negative public wage gaps. In oil exporters, public employment stands at a quarter of total employment, or 16 percent of the working-age population. In oil importers, the respective shares are smaller (16 percent and 9 percent), although still high compared with global peers. Greater prevalence of public employment in the CCA oil exporters may reflect oil wealth distribution (see below).

Figure 2.4.General Government Wage Bills, 2005–2016

(Percent of GDP, period average)

Sources: IMF, World Economic Outlook; country authorities; and IMF staff estimates.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

Figure 2.5.General Government Wage Bills, 2005–2016

(Percent of expenditure, period average)

Sources: IMF, World Economic Outlook; country authorities; and IMF staff estimates.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

Figure 2.6.Public Wages and Employment, 2005–16

(Percent, latest available)

Sources: Country authorities; national labor surveys; and International Labour Organization. Data for Morocco from World Bank 2011.

Note: CCA = Caucasus and Central Asia; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan. Bahrain, Kuwait, Qatar, and Saudi Arabia are as a percent of their national labor force. This is because nonnationals make up a significant portion of the labor force in GCC countries, while highly restricted to public sector employment. For Iraq, Tunisia, Egypt, Georgia, Tajikistan, and Armenia, gaps are represented by wage premium estimates obtained after controlling for employee characteristics (IMF 2016), while the rest are simple averages of public employee wages over private wages.

Figure 2.7.Wage Bills and Public Sector Employment, 2005–16

(Percent, average)

Sources: IMF, World Economic Outlook database; country authorities; national labor force surveys; International Labour Organization data; and IMF staff model estimates.

Note: Data labels in this figure use International Organization for Standardization (ISO) country codes. Coverage (120 countries) varies across periods. Red lines represent Emerging Market and Developing Economy (EMDE) weighted averages.

Trends

Although there is significant variation within the region, public wage bills in the Middle East and Central Asia have generally grown faster than in global peers in recent years (Figures 2.8 and 2.9).

  • In the GCC countries and Algeria, real wage bill growth rose to 8 percent a year during 2001–07, from an average of 2 percent during 1992–2000. It continued to rise, reaching 10 percent during 2008–16, despite the global financial crisis and a prolonged decline in oil prices. This stands in contrast to other oil exporters and emerging market and developing economies, where wage bill growth slowed during 2008–16. Expansion of public employment has been the main driver of wage bill growth in the GCC in recent years, in part because of development programs.
  • Among non-GCC MENA oil exporters, Iran’s wage bill has been shrinking in real terms since the imposition of the UN sanctions in 2006 and a rise in inflation. In Iraq, wage bill growth rose after post–Gulf War restoration of oil production and public administration functions.
  • In MENAP oil importers, after growth of 8–9 percent during 1992–2007, real wage bill growth moderated to below 6 percent during 2008–16, in line with trends in other emerging market and developing economies. Wage growth, rather than employment, has been a more prominent driver of wage bill expansion since 2011.
  • In the CCA, after a moderate expansion in the 1990s, real wage bills grew during 2001–07, almost 25 percent a year on average. In oil importers, this growth was driven by wages recovering from the sharp compressions during the 1992–93 hyperinflation. As in other emerging market and developing economies, wage bill growth slowed during 2008–16, but remained relatively strong, averaging 13 percent (8 percent) in oil importers (exporters).

Figure 2.8.General Government Wage Bills, 2016 versus 2002

(Percent of GDP)

Sources: IMF, World Economic Outlook; and IMF staff estimates.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

Figure 2.9.General Government Wage Bills Average Annual Growth, 1992–2016

(Percent)

Sources: IMF, World Economic Outlook; country authorities; and IMF staff estimates.

Note: CCA = Caucasus and Central Asia; EMDE = emerging market and developing economies; GCC = Gulf Cooperation Council; MENAP = Middle East and North Africa, Afghanistan, and Pakistan.

The share of the labor force employed in the public sector has been stable or slowly declining in most countries, owing to gradual diversification of oil-based economies and private sector development. In the CCA, the decline in public employment was more pronounced, reflecting the transition from central planning. During the Arab Spring in 2011, some countries, such as Algeria, increased public employment. Others—the GCC countries and Tunisia, for example, reversed an earlier decline in public employment. Public employment shares also rose in Iraq, due to its conflict-related challenges.

1International comparisons provide a common yardstick and serve as a starting point for deeper analysis and assessment. One size certainly does not fit all. Each country’s appropriate wage bill level will depend on its specific circumstances, particularly preferences for the size of government, fiscal situation, demographic structure, security conditions, and resource constraints. There is also heterogeneity in the sectoral composition of the wage bill, which we were not able to capture for a significant number of countries given lack of data.
2The emerging market and developing economy group follows the WEO classification. Oil exporters comprise countries with average net fuel exports exceeding 1 percent of GDP during 2007–15 (Appendix 1).
3Public wage bill averages are weighted by countries’ purchasing power parity (PPP)-based GDPs. Simple averages tend to be higher (8 percent of GDP compared with the 6 percent of GDP weighted average for emerging market and developing economies). For more details on simple averages for emerging market and developing economies, advanced economies, and other subgroups, see IMF 2016a.
4CCA public wage bills do not cover employment by extrabudgetary funds (IMF 2014a, Box 4). Trends in CCA wage bills in percent of GDP are also difficult to interpret because of large swings in output and a sharp scaling up of oil production in the 1990s.
5Premium calculations are distorted by noninclusion of benefits and allowances. While reliable data on the latter are scarce, they tend to be substantially higher in the public sector, with public wage premiums underestimating public compensation premiums. In addition, average wages hide differences in skill levels. Evidence for Saudi Arabia suggests that public wage premiums are higher for lower-skilled workers.
6As discussed by Gunderson 1979, wages of comparable workers in the public and private sectors may differ for various reasons, such as stronger unionization of public sector workers (Mueller 1998; Holmlund, 1993), differences in nonmonetary benefits and job security (Clements and others 2010). Public wage premiums may also be affected by differing degrees of rigidity. IMF 2016a finds that the public-private wage ratio increases significantly during downturns.
7Evaluating public wage bills by functional category (education, health, security, etc.) would greatly enrich the analysis, but unfortunately such data are generally not available for the countries in this region.
8Data from the Social Security Corporation of Jordan in 2013 indicate that the average public sector wage (including only civil servants) is 7.8 percent lower than the average private sector wage.

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