VIII Possible Policy Applications: Calculation of Intercountry Indices for Analyzing the Level and Structure of Government Employment and Wages
Author: Mr. Alan A. Tait1 and Mr. Peter S. Heller
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund
Language:
English
Keywords:
OP; employee; government; wage; country; central government employment; employment level; rate policy; employment variable; defense employment; employment index; Public employment; Employment; Public sector wages; Income; Wages; Africa
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Abstract

Section IV presents an econometric analysis of the determinants of government employment. The estimated equations can be used to calculate an International Government Employment Index (hereinafter referred to as the IGEM index), which would indicate whether a country employs more or fewer employees than one would have predicted, given its per capita income, population, type of economic system, and the patterns observed in other countries. It must be emphasized that these indices are likely to be strongly influenced by the quality of the data and the limited number of observations in the sample.

Employment: By Level of Government

Section IV presents an econometric analysis of the determinants of government employment. The estimated equations can be used to calculate an International Government Employment Index (hereinafter referred to as the IGEM index), which would indicate whether a country employs more or fewer employees than one would have predicted, given its per capita income, population, type of economic system, and the patterns observed in other countries. It must be emphasized that these indices are likely to be strongly influenced by the quality of the data and the limited number of observations in the sample.

Table 16 indicates two results for each employment measure: the predicted absolute level of employment and, for countries where actual employment data are available, the IGEM index, which equals the ratio of actual employment to the predicted level (multiplied by 100).33 The former number allows a country to determine how its employment compares with what was predicted.

Table 16.

IGEM Indices and predicted level of Government Employment: By Level of Government

(Predicted employment in thousands of employees)

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The IGEM indices for general government employment for the OECD countries range from 61 to 189 percent. Some countries, for example, Belgium, Ireland, and Italy, appear to employ in general government just the number that would have been predicted, although, again, this says nothing about whether the government revenue of any of these countries is sufficient to afford this level of employment. Some are considerably higher, notably the Scandinavian countries, the United Kingdom, Australia, and New Zealand. Among African countries, Uganda, Swaziland, Kenya, and Mauritius appear to have considerably more government employees than would have been predicted. Others, such as Cameroon, Burundi, Madagascar, and Senegal, appear to have lower than predicted levels.

The policy implications of such results cannot and should not be drawn without analyzing many other factors, such as wage rate policy or the allocation of particular functions as between the public and private sectors. For example, a lower than predicted government employment level in a country does not argue, prima facie, for expanded employment in the absence of other policy measures or further policy analyses. Senegal and Burundi are obvious examples. Their employment indices of 50 and 42, respectively, suggest a general government sector that is lower, in employment terms, than would have been expected. Yet, in another study by the authors, estimates of the predicted versus actual share of total central government wage and salary expenditure in GDP in Senegal suggested that it was spending more than would have been expected on such wages and salaries.34 One possible source of reconciliation of these two results could derive from the levels of Senegal’s central government wage rates, as shown in Appendix 1, Table 27. The ratio of the average central government wage to per capita income in both Senegal and Burundi is higher than for any other country in this sample. Clearly, this ratio suggests high wages and low levels of employment, although these results do not themselves suggest the desired level of remuneration or employment.

However, there is one additional cautionary note. The interesting analogue to the Senegal and Burundi cases is Japan, which also has a lower than expected employment level and a higher than expected average central government wage rate relative to per capita income. Are its wages excessive and its employment in the government too low? Is it a matter of productivity? Is one paying for a highly productive, elite corps of civil servants through a high wage rate incentive? Or, is one paying an economic rent to those civil servants lucky enough to get public employment but whose productivity does not warrant high wage rates? Do other factors contribute to the observed indices, such as the significance of an expatriate labor force in the government civil service? The IGEM indices only suggest the existence of an imbalance and provoke the obvious questions. The sources and significance of imbalances can be determined only through more detailed analyses of a country’s particular situation.

Another illustration of this can be seen in the indices for Asia. In this region, most countries tend to employ more civil servants than would have been predicted; none employs less. Yet in the Tait-Heller (1982) study, almost all these countries appear to spend, in aggregate terms, less than would have been predicted on aggregate wages and salaries. Relative to per capita income, the average central government wage of Asian public employees is less than half that in African countries, although still higher than most of the OECD countries. Should there be a cutback in employment and an increase in salaries?

Employment: By Function

Analysts of public employment in a country are often confronted by the need to evaluate not only the size of the government sector but also the sectors where public employment should be frozen or even cut back. There is no substitute for a detailed analysis of the efficacy of programs within a sector as a basis for such an evaluation. As an input to such analyses, cross-country comparisons may serve a useful role. Using a model analogous to the one used in Section IV to predict total government employment, it is possible to examine the aggregate determinants of functional employment in the central government on a per capita basis.35 As mentioned earlier, the employment variables are assumed to be a function of (1) per capita income, (2) population, and (3) the type of economic system. The econometric results are indicated in Table 17.

Table 17.

Determinants of Functional Employment Per Capita

(t-Statistics in parentheses)

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Measured in number of employees per 100 inhabitants.

In thousands of U.S. dollars.

In thousands.

n = number of observations in the sample.

Several facets of the results should be noted. First, the level of development as proxied by per capita income proves a significant positive determinant of employment per capita in some key sectors—notably, education, health, police, finance and planning, and labor and social security. Interestingly, defense employment per capita declines at higher per capita income levels. Other sectors, such as administration, mining, manufacturing, and construction, prove insensitive to the level of development. Second, certain sectors appear to receive less public employment on a per capita basis in the countries with higher populations, notably in agriculture, administration, police, finance and planning, mining, manufacturing and construction, and utilities. With the exception of police, this negative relationship may reflect the relatively greater importance of the state and local government sectors in providing services in these sectors. Finally, the type of economic system does not prove very important as a determinant of the magnitude of sectoral employment. Only adjusted central government employment per capita in the health sector appears to be correlated directly with the degree of central planning in the economy.

The preceding equations may be used to predict the level of sectoral employment in a given country, given its per capita income, population, and type of economic system. This also requires the strong assumption that it follows the pattern of experience of other countries with like characteristics and subject to the important caveat that the statistical significance of these results is not as robust as in the equations estimating aggregate government employment. As above, both the IGEM index—the ratio of the actual employment in a sector to the predicted level—and the absolute number of employees that one would have predicted for a sector have been indicated. (See Appendix I, Table 33.) Again, these results should not be construed as norms but can serve only as a starting place for further inquiries as to why a government’s employment in a sector is high or low.

An Approach for Analyzing the Level of Government Salaries

Section V presented the results of an econometric analysis explaining the ratio of the average central government wage to GDP per capita. As before, the estimating equation may be used to predict the average central government salary level that would be compatible with a country’s per capita income, and size of government sector, given the patterns established by other countries. As above, one could then compare the predicted salary with the actual salary prevailing at that time and estimate the extent to which the salary was above or below the anticipated level in the year of this observation. An index value, equaling the ratio of actual to predicted salary, has been calculated and is indicated in column 2 of Table 18, along with the predicted salary for that year in U.S. dollars. The exchange rates prevailing in that year have been used. The degree to which a country’s currency was particularly strong or weak at that time will obviously affect the relative salary of a country’s civil servants vis-à-vis others.

Table 18.

IGEM Indices and Predicted Level of Central Government Wages

(Wages expressed in local currency units)

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Cited By

Within Same Series

Other IMF Content

Other Publishers Content

Cover Government Employment and Pay
Government Employment and Pay
Some International Comparisons
Author: Mr. Alan A. Tait and Mr. Peter S. Heller
ISBN:
9781557750686
ISSN:
0251-6365
Publication Date:
31 Oct 1983
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557750686.084
Pages:
76

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