The obvious question is “high in relation to what”? Generally, public sector wages are measured against private sector wages and are perceived as “too high” or “too low” relative to remuneration for equivalent services performed in the private sector. Indeed, this can be codified to the point where public sector wages are fixed by a comparator formula that links them to private sector wage rates and scales.24 The comparison that can be made from the figures in this sample cannot say whether public sector wages are “too high or not” in the sense that Martin Feldstein argued when he cited the large number of applicants for air traffic controller jobs as evidence that the wages offered in the public sector were too high (his policy recommendation was to reduce wages).25
The base of comparison is obviously central to this issue. Government wages in an economy with a large agricultural sector may be low vis-à-vis the private sector and yet be a significant multiple of the average per capita income of the population as a whole. Central government wages may be high relative to those prevailing at the state and local governmental level or in the nonfinancial public enterprise sector. Moreover, “any analysis of the sectoral distribution of pay which solely examines the public and private sectors in total will mask considerable heterogeneity within each sector.”26 Again, the overall evidence on pay for any one country shows “that there are considerable fluctuations in the relative pay of workers in the public and private sectors . . . . Comparisons of pay in single years or even two-or three-year averages can therefore be particularly misleading and results can be very sensitive to the benchmarks chosen.“27
Perhaps the most obvious, and most readily calculable, measure of the relative pay of civil servants is the ratio of the average wage per central government employee to GDP per capita. (See Table 8 and Appendix I, Table 27.) This ratio reflects the average wage for all employees, including the military, and thus probably understates the implied ratio of civilian wages relative to GDP per capita. The range of this ratio is remarkable. Whereas in the OECD countries the government average wage is approximately 1.7 times the per capita income, in the developing countries it is approximately 4.4 times that income. The range of variances is equally extreme. Among OECD countries, the variance is low, with the lowest ratios at 1.5 in Sweden and Canada and the highest being 2.5 in Ireland. Among developing countries, the lowest ratio is 1.2 in Singapore, the highest 15.1 in Burundi. The regional variation is even wider, with the ratio averaging 6.1 in the African region and 2.9 in both Asia and Latin America. In Africa the ratio is highest in such countries as Benin, Burundi, and Senegal (ranging from 10 to 15) and is lowest in Mauritius and South Africa (equaling 2 and 3.8, respectively). In the Asian region, there is a much lower variance in the ratio. India and Korea have the largest ratios (4.8) and Singapore the lowest (1.2).
Alternative Measures of the Level of Government Wages1
X = mean; s = standard deviation; n = number of observations in the sample.
Including the state and local government, nonfinancial public enterprise, and private sectors.
Alternative Measures of the Level of Government Wages1
| Developing Countries | ||||||
|---|---|---|---|---|---|---|
| OECD Industrial Countries | Total sample of countries | Africa | Asia | Latin America | ||
| Multiple of average central government wage to GDP per capita | ( | 1.74 | 4.44 | 6.05 | 2.90 | 2.94 |
| (s) | (0.41) | (2.91) | (3.27) | (1.74) | (1.00) | |
| (n) | 16 | 33 | 16 | 5 | 8 | |
| Ratio of average central government wage to average wage in manufacturing sector | ( | 1.25 | 1.75 | 1.58 | … | 2.16 |
| (s) | (0.30) | (1.15) | (0.93) | … | (1.54) | |
| (n) | 15 | 20 | 8 | 3 | 6 | |
| Ratio of average central government wage to implied average wage outside the central government2 | ( | 1.13 | 1.16 | 0.80 | … | 1.28 |
| (s) | (0.40) | (0.91) | (0.32) | … | (0.35) | |
| (n) | 15 | 17 | 9 | 3 | 4 | |
X = mean; s = standard deviation; n = number of observations in the sample.
Including the state and local government, nonfinancial public enterprise, and private sectors.
Alternative Measures of the Level of Government Wages1
| Developing Countries | ||||||
|---|---|---|---|---|---|---|
| OECD Industrial Countries | Total sample of countries | Africa | Asia | Latin America | ||
| Multiple of average central government wage to GDP per capita | ( | 1.74 | 4.44 | 6.05 | 2.90 | 2.94 |
| (s) | (0.41) | (2.91) | (3.27) | (1.74) | (1.00) | |
| (n) | 16 | 33 | 16 | 5 | 8 | |
| Ratio of average central government wage to average wage in manufacturing sector | ( | 1.25 | 1.75 | 1.58 | … | 2.16 |
| (s) | (0.30) | (1.15) | (0.93) | … | (1.54) | |
| (n) | 15 | 20 | 8 | 3 | 6 | |
| Ratio of average central government wage to implied average wage outside the central government2 | ( | 1.13 | 1.16 | 0.80 | … | 1.28 |
| (s) | (0.40) | (0.91) | (0.32) | … | (0.35) | |
| (n) | 15 | 17 | 9 | 3 | 4 | |
X = mean; s = standard deviation; n = number of observations in the sample.
Including the state and local government, nonfinancial public enterprise, and private sectors.
Some of the differences between the developed and developing countries in terms of this measure may reflect the high educational requirements associated with public sector employment and the relative scarcity value of educated workers. In a developed country, the contrast between the educational qualifications of public and private sector employees is likely to be considerably less. In some countries, such as Senegal, reliance on expatriates may skew the ratio upward.
A simple model has been developed to explain the variance in this ratio, assuming it to be a function of per capita income, the shares of central government employment, and nonfinancial public enterprise employment in the nonagriculturally employed. In effect, the latter two variables are intended to provide a measure of the degree of leverage implied by the relative importance of government employment in the nonagricultural sector. Again, a test was made of the hypothesis that the slope of any relationship to per capita income might shift at a given level of per capita income.
The results (Table 9) suggest that the ratio of the average central government salary to GDP per capita rises with per capita income for countries with a per capita income that is less than US$600. Beyond that level, there does not appear to be any statistically significant relationship between the salary multiple and per capita income. A high share of central government employment in nonagricultural sector employment does not seem to have any significant effect on this ratio. On the other hand, in the smaller sample of countries for which data on nonfinancial public enterprise employment are available, a high share of public sector employment among the nonagricultural employed has a clear, positive impact on the ratio.
Determinants of the Ratio of the Average Central Government Wage to GDP Per Capita
(t-statistics in parentheses)
(n) = number of observations in the sample.
Determinants of the Ratio of the Average Central Government Wage to GDP Per Capita
(t-statistics in parentheses)
| Independent Variables\Dependent Variables | Per Capita Income (PCI) (In thousands of U.S. dollars) | Central Government Employment as a Share of Nonagricultural Employment | Public Sector Employment as a Share of Nonagricultural Employment | Constant | R2(n)1 | |
|---|---|---|---|---|---|---|
| Ratio of average central government wage to GDP per capita | ||||||
| Countries with PCI ≤ US$600 | 0.50 | 0.02 | 3.09 | 0.58 | ||
| (3.53) | (1.36) | (5.37) | (46) | |||
| Countries with PCI > US$600 | – | 0.02 | 3.09 | 0.58 | ||
| (−3.72) | (1.36) | (5.37) | (46) | |||
| Ratio of average central government wage to GDP per capita | ||||||
| Countries with PCI ≤ US$600 | 0.76 | 0.05 | 1.05 | 0.71 | ||
| (3.99) | (3.02) | (1.09) | (27) | |||
| Countries with PCI > US$600 | – | 0.05 | 1.05 | 0.72 | ||
| (−4.09) | (3.02) | (1.09) | (27) | |||
(n) = number of observations in the sample.
Determinants of the Ratio of the Average Central Government Wage to GDP Per Capita
(t-statistics in parentheses)
| Independent Variables\Dependent Variables | Per Capita Income (PCI) (In thousands of U.S. dollars) | Central Government Employment as a Share of Nonagricultural Employment | Public Sector Employment as a Share of Nonagricultural Employment | Constant | R2(n)1 | |
|---|---|---|---|---|---|---|
| Ratio of average central government wage to GDP per capita | ||||||
| Countries with PCI ≤ US$600 | 0.50 | 0.02 | 3.09 | 0.58 | ||
| (3.53) | (1.36) | (5.37) | (46) | |||
| Countries with PCI > US$600 | – | 0.02 | 3.09 | 0.58 | ||
| (−3.72) | (1.36) | (5.37) | (46) | |||
| Ratio of average central government wage to GDP per capita | ||||||
| Countries with PCI ≤ US$600 | 0.76 | 0.05 | 1.05 | 0.71 | ||
| (3.99) | (3.02) | (1.09) | (27) | |||
| Countries with PCI > US$600 | – | 0.05 | 1.05 | 0.72 | ||
| (−4.09) | (3.02) | (1.09) | (27) | |||
(n) = number of observations in the sample.
The regional variations in the multiple of salaries to GDP per capita among low per capita income countries should be emphasized. Civil servants in Africa appear to be much better off relative to the general population than their counterparts elsewhere in the world. Where central government employment represents more than 20 percent of the nonagriculturally employed and those government servants are paid an average 4.8 times more than the income per capita (for example, India), the public sector might seem to be a somewhat privileged group; even if the central government were only 10 percent of total urban employment, the fact that their wages are 5.7 times higher than the mean per capita income (for example, Egypt) must still set them apart.28
There are several other alternative approaches to gauging the relative level of public and private sector wages from this relatively macroeconomic data base. In the discussion on pages 6-9, it was noted that it is possible to compare the relative weights of central government wages and employment in total wages and nonagricultural wage employment in the economy, respectively. Implicitly, this yields the ratio of the average wage in central government to the average wage outside the central government (for example, in state and local governments, nonfinancial public enterprises, and the private nonagricultural wage sector). The validity of the ratio is subject to the qualifications concerning the coverage of nonagricultural sector employment and total compensation of employees in the national income accounts. The means of these wage relatives are presented in Table 8 and the individual country statistics in Appendix I, Table 28.
In most countries for the sample, the coefficient is above one, showing that central government employment is better paid on average than is private sector employment. This situation is not necessarily surprising, as, in poorer countries, the educational requirements of public sector employment are often much higher than that of private sector employment. In such countries as Canada, Japan, Denmark, and the Federal Republic of Germany, the public sector is at least one-third better paid than the private sector. However, when the wages of the state and local governments are added to those of the central government and are compared with the pay in the private sector plus the nonfinancial public enterprises, the relative advantage of government pay falls, compared with that of the central government alone for Japan, Denmark, and the Federal Republic of Germany. This fact may reflect the capital city wage differential that central governments must pay.
However, it is interesting to note that for the Netherlands (which is unusual in this case), the expansion of the public sector to include state and local authorities increases the relative advantage of government pay. In the United Kingdom, considering the central government alone, average wage payments are slightly higher than in the private sector. However, when the central government and local authorities are combined, the payment to the broader definition of government is almost exactly the same as in private industry; but, in this case, when the public sector is expanded to include the pay of those in nonfinancial public enterprises, the advantage of public sector employment again increases relative to private sector employment. This finding suggests that employees in nonfinancial public enterprises have relatively better pay than those employed in the private sector.
Table 8 that while those employed in central government in developing countries are, in general, better off on average than the average person employed in the private sector, central government employment does not appear to be any more favored in the OECD countries. The questionable validity of the comparisons is also raised for some of the countries considered, notably Korea, Egypt, India, and Zambia. The calculated ratios would suggest that, in Korea, public sector average wages are more than four times the size of those in the private sector, apparently making this the relatively best paid public sector employment in the sample; the second best paid public sector employees, compared with the average private wage earners, are in Egypt, where the average pay appears to be almost two and one-half times that of the private sector. Another interesting anomaly in the developing countries sample is Zambia, where central government wage payments appear to be approximately one third as high as those in the private sector.
Another obvious approach to making a public/private sector comparison is through the use of ILO wage rate data. The statistical series on wage rates in manufacturing affords the most comprehensive comparison, and thus offers a different sectoral coverage than is implied from the national income accounts measure above. The regional means in Table 8 suggest that the average central government wage is higher than that prevailing in the manufacturing sector, with the margin considerably wider in the developing countries than in the OECD region. As noted above, the relative central government wage is higher in Latin American countries in the sample than in the African ones.
In effect, the differential between African wages in the government and modern manufacturing sectors are less than those that seem to prevail in Latin America; on the other hand, the differentials in Africa between government wages and per capita income are far more stark than in Latin America or Asia, as has already been indicated. Also, there is no obvious relationship between the observed differentials using the national income data and those derived from the ILO data. Is it simply the effect of service employment that leads Korea to have a low average private sector wage and a relatively high average manufacturing sector wage? Or, are these the coverage difficulties alluded to above? The same questions apply for such countries as Argentina, India, Mauritius, Swaziland, and Zambia. These ambiguities in the results suggest using extreme caution in applying these measures; perhaps the ratio of average central government wages of GDP per capita may be preferred as a measure of the appropriateness of the government’s wage level.