Abstract

The detailed information arising from this work is embodied in the tables and text, but attention might be drawn to a number of principal conclusions and results.

The detailed information arising from this work is embodied in the tables and text, but attention might be drawn to a number of principal conclusions and results.

1. It is surprising and depressing how little information is readily available on public sector employment and pay. Perhaps the Fund, the ILO, or the World Bank should devote some of their resources, proportionate to the importance of the public sector in most of their member countries, to collecting and publishing consistent time-series data on this subject.

2. Central government decisions on wages and salaries in developing countries are likely to affect 15 to 40 percent of employed workers in the urban labor market and therefore have a pervasive “leverage” effect on domestic unit wage costs. In terms of formal incomes policies or in formal wage bargaining, this is likely to be an important influence.

3. General government (central, state, and local) employees average 7 per 100 inhabitants for OECD countries and only 3 for developing countries. Among OECD countries, Sweden (14.7), Denmark (11.4), and the United Kingdom (9.6) combine large local governments with large central governments to create these high percentages for general government. The mean employment share of the central government in total general government employment in developing countries is approximately 85 percent. This figure contrasts with a ratio of only 42 percent in the OECD countries. As a result, leverage is likely to be more powerful in local authorities in OECD countries than in developing countries.

4. Employees of nonfinancial public enterprises are quantitatively more significant in developing countries, averaging 14 percent in nonagricultural sector employment, in contrast to only 4 percent in the OECD countries.

5. Public sector employees average 44 percent of nonagricultural sector employment in developing countries compared with 24 percent for the OECD countries. In some developing countries, the ratio can reach as high as 72 percent (India) or 87 percent (Benin). In the OECD, the public sector’s percentage of the total nonagriculturally employed is highest: 36 percent (New Zealand), 34 percent (Sweden), 33 percent (Belgium), and 31 percent (United Kingdom). Broadly speaking, most OECD countries can expect to have one fifth to one fourth of their total active labor force employed in the public sector.

6. The total share of wages in national income is positively correlated with the share of the central government wage bill in GDP; the share of the state and local government wage bill has no effect on the overall wage bill.

7. The functional structure of public expenditure is a key determinant of the magnitude of public sector wage and salary expenditure. The relatively higher importance of wages at the state and local government level reflects the lesser importance of cash transfers or services commissioned outside the public sector.

8. Total government employment per capita tends to increase as per capita income rises, thus supporting the validity of the alternative test of Wagner’s law presented in this study. This is a particularly strong result when one considers that the expansion of the public sector in some developed countries has taken the form of transfers and the contracting out of services rather than through the provision of direct employment. The relationship is particularly strong for countries with a per capita income in excess of US$800. State and local government employment per capita is not significantly influenced by population size, and neither is general government nor public sector employment. On the other hand, the share of central government employment in total nonagricultural employment declines with per capita income; for countries with a per capita income of less than US$1,400, the share of total general government employment declines; above that income level, it increases. Public sector employment as a share of nonagricultural employment declines with per capita income.

9. The more centrally planned the economy, the higher the share in the nonagriculturally employed of employees in state and local government, nonfinancial public enterprises, and the public sector.

10. It is striking how high the state and local government wage bill is compared with that of central government in many countries where government is typically thought of as centrally dominated; for example, in Japan, 69 percent of the wage bill is paid to local government officials, and almost 70 percent in Denmark. This emphasizes the importance of wage settlements at the local government level; in speaking of national wage policy, there must be an appreciation of whether or not the central government has de facto control over local government pay and hiring.

11. In some developing countries, the wage bill of nonfinancial public enterprises can be as high as 50 percent of the total public sector wage bill (e.g., in Brazil).

12. Central government wages in developing countries are, on average, 20 percent of total compensation of employees in the economy, with the highest ratio in the African region and the lowest in Latin America.

13. In developing countries, the average wage in the government sector appears to be less than that in the nonagricultural private sector, suggesting that government sector employees in these countries may not be able to translate their numerical strength into commensurate strength in their wage rates relative to their peers in the modern component of the private sector (but see point (14) for remuneration in industrial countries).

14. In the OECD countries, the average central government wage is approximately 1.7 times per capita income; in the developing countries, it is approximately 4.4 times per capita income. The highest ratio within the OECD is for Ireland (2.5), and in the developing countries the ratio averages 6.1 in Africa and 2.9 in Asia and Latin America. In Benin, Burundi, and Senegal, the ratio is over 9.9. The difference between industrial and developing countries in this ratio may reflect differences in the educational requirements of government employment relative to that required of the labor force outside government.

15. Taking observations (13) and (14) together suggests that the average private modern sector wage must be a much greater multiple of per capita income in developing countries than in OECD countries, which in turn is likely to be related to the small relative size of the modern sector in developing countries.

16. The multiple of average central government salary to per capita income is positively related to per capita income for countries with a per capita income of less than US$600; at higher per capita income levels, there is no obvious statistical relationship. A high share of the public sector in nonagricultural sector employment has a clear positive impact on the ratio. The regional variations in the multiple of salaries to GDP per capita among low per capita income countries should be emphasized; there seems to be a general practice for civil servants in Africa to be much better off relative to the general population than their counterparts elsewhere in the world.

17. Central government employment appears to be better paid on average than private sector employment, although of course, it must be kept in mind that the mix of jobs in the two sectors is likely to be quite different. In countries such as Canada, Japan, Denmark, and the Federal Republic of Germany, the public sector appears to be paid almost one-third more than the private sector.

18. On average, central government employees are almost uniformly better paid than the average employee at the state or local government level; this may reflect the higher cost of living in capital cities. It may also reflect a higher educational content required in the jobs of central government employment relative to those at the state and local government level.

19. Although the average salary per employee in the nonfinancial public enterprise sector is generally higher than that paid in the central government, the data suggest some notable exceptions to this pattern.

20. While no one would argue that relative salaries across occupations should bear an identical relationship in every country, the discrepancies in some cases are large enough to raise questions about the rationale. It is also interesting to note the wide variation in the relative salaries of positions in the same sector, for example, between primary school and secondary school teachers.

21. Across positions within countries, the variance of salary scales can be quite extreme; in Kenya the standard deviation of the index is 208, relative to a mean index for a clerical officer of 100. In Trinidad and Tobago, the standard deviation reached 247. In other countries the salary spread is quite tight; for instance, in Denmark and Sweden, the standard deviation is only 38 and 18, respectively.

22. For some countries in the sample, significant variations are apparent in the degree of inequality in the overall public sector salary structure. Countries such as Korea, the United Kingdom, Sweden, and New Zealand show a relatively high degree of equality, while others, such as Guatemala, Kenya, and Senegal, have relatively unequal salary structures.

23. The mean number of personnel employed in central government administration per 100 inhabitants for OECD and non-oil developing countries is remarkably similar; typically, African countries have the highest level of administrative employment (0.29 per 100 inhabitants), and Asian countries the lowest (0.14). Those employed in the administrative sector of government appear to be paid rather more than the average for the public service.

24. Payments to educators in the public service in Africa and Asia are markedly above the average for government employee pay scales in these regions.

25. Employment of defense forces and police is higher in the developing countries than in OECD countries. However, the country with the highest percentage of its population committed to defense in the OECD is the United States. The variance in the number of defense personnel per capita in developing countries is wide. Swaziland requires 6.9 military per 1,000 inhabitants, and Kenya only 0.8. In Europe, police forces tend to be paid approximately the same as those in the defense services. In many developing countries, the police forces appear to have an average wage that is much lower than the average wage in the defense forces. This fact may be explained, in part, by special allowances and other fringe benefits.

26. The econometric analysis of the determinants of government employment can be used to estimate an IGEM index to indicate whether a country employs more or fewer employees than would have been predicted, given its per capita income, population, and type of economic system. Belgium, Ireland, and Italy appear to employ a total general government, which is just as would be predicted. Some countries employ more than might have been predicted, for example, notably the Scandinavian countries, the United Kingdom, and New Zealand. The indices can suggest the existence of an imbalance. The sources of the imbalance can be determined only through a more detailed analysis of the country’s situation. For instance, the high level of the index for the United Kingdom might reflect the inclusion of the National Health Service employees in central government employment. In another case, Japan has lower than expected employment levels and a higher than expected average central government wage rate relative to per capita income. It is not possible from these results to determine whether its wages are excessive and its employment in government low, or whether the Japanese are paying for a highly productive, elite corps of civil servants through a high wage incentive. However, the results do provoke such questions.

Finally, much work remains to be done on most of these issues. This paper will have achieved its purpose if attention has been drawn to these issues and if the need for better data has been recognized.

Cited By

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