Abstract
This Selected Issues paper for Nicaragua reports that the Central America–Dominican Republic-United States Free Trade Agreement (CAFTA-DR) provides a general framework for country-specific bilateral agreements. In addition to the phased liberalization of trade in goods, CAFTA-DR provides broad market access for services and includes provisions in areas such as intellectual property rights, investment, government procurement, and competition policies. Labor provisions are slightly tighter than under other similar agreements by offering a platform to examine the quality of existing legislation, rather than only ensuring its implementation.
II. Public Sector Employment and Compensation in Nicaragua1
1. Public sector employment and compensation in Nicaragua have grown rapidly in recent years. This reflects a multitude of factors, but as such, compensation spending is consuming a growing share of primary spending and raises concerns for macroeconomic stability, competitiveness, and the flexibility and poverty-orientation of Nicaragua’s budget. Moreover, the magnitude and trend of compensation costs in the public sector are not fully and readily apparent in the budget. Also, growing budget rigidities could constrain the capacity of the government to absorb shocks going forward.
2. The paper examines a number of issues related to public sector employment and compensation in Nicaragua. Section A of the paper looks at recent trends in public compensation in Nicaragua. Section B describes the structure of the public sector in terms of employment and compensation and the institutional features underlying wage and employment policies. Section C discusses the main reasons underlying the high and increasing wage costs, why these developments have not been captured adequately in the economic classification and the implications for the flexibility and poverty-orientation of the budget, and competitiveness. Section D presents some conclusions.
A. Recent Trends
3. The public sector accounts for a large share of formal sector employment. About 40 percent of Nicaragua’s economically active population is engaged in formal sector employment. The rest of the labor force is engaged in small enterprises and other low-skilled activities in the informal sector. Formal sector employment is more concentrated amongst larger firms and the public sector. Indeed, about 20 percent of the formal labor force is hired by the public sector. Hence, public compensation policies are likely to influence employment dynamics, wage setting, and competitiveness in the formal private sector.
4. Total compensation to public sector employees in Nicaragua has been growing in recent years, increasing beyond private sector wages. Compensation expenditures to public employees at the central government level2 are estimated to have grown from about 7.6 percent of GDP in 2000 to about 8.6 percent of GDP in 2005. The 2005 level for the central government wage bill in Nicaragua is about 3 percentage points of GDP higher than the average in Latin America and the Caribbean (LAC).3 Meanwhile, average real wages for the central government grew by 27 percent in the period from 2001-2005, as compared to a drop of 3 percent in the average real wage of the formal private sector.4
Gross compensation of Public Sector, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Gross compensation of Public Sector, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Gross compensation of Public Sector, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Evolution of Public and Private Average Real Wages, Mar. 01-May 05
(2004 C$ thousand per month)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Evolution of Public and Private Average Real Wages, Mar. 01-May 05
(2004 C$ thousand per month)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Evolution of Public and Private Average Real Wages, Mar. 01-May 05
(2004 C$ thousand per month)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
5. The growth in total compensation to public sector employees has not been reflected in the economic classification of the budget. The economic classification of the budget shows compensation expenditures at a level of 4 percent of GDP for 2005, slightly below the level of 2001. The discrepancy between total compensation and the economic classification seems to have increased in recent years, reflecting the increased importance of bonuses in public employee compensation. In particular, while the economic classification would have suggested a slight decline in compensation expenditures between 2004 and 2005, compensation expenditures increased by about 0.4 percent of GDP mainly due to a large wage increase approved by the National Assembly for health workers and teachers in 2005 that was paid out in the form of a bonus.
Wage Bill, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Wage Bill, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Wage Bill, 2001-2005
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
B. Structure of the Public Sector and Institutional Features of Compensation and Employment Policies
Size and Structure of Public Employment
6. The public sector in Nicaragua is estimated to account for more than 1/5 of formal sector employment in 2005. Within this overall level of employment, the general government5 is estimated to comprise about 9 percent of total non-agricultural employment. While the latter does not seem large with respect to the LAC average of about 21 percent, it is more than 20 percent of formal sector employment. As such, the public sector is a significant player in the formal labor market.
7. The central government comprises a variety of entities. The definition of central government used in this paper is composed of the Presidency and Vice-Presidency, 12 central line ministries of the executive branch6 which are in charge of designing and defining policies, 29 decentralized institutions7 that are in charge of assisting policy implementation, public universities8 and five institutions pertaining to other government powers.9
8. The central government accounts for 77 percent of public sector employment, reflecting a fairly centralized structure of government.10 The central government hires most public employees and undertakes most investment projects. The local governments are composed of regional governments, councils and municipalities—altogether accounting for 9 percent of total public employment in 2005. Municipalities employ about 96 percent of total local government employees. Public employees in government financial institutions and public enterprises account for the rest of public sector employment.
9. There have been significant differences in employment growth between the central government and local governments. Central government employment grew about 7 percent in the period 2000-05 maintaining a roughly constant ratio as a share of the population of about 2 percent, similar to the LAC average of about 2.5 percent. However, employment in regional governments and municipalities grew by 46 percent in the same period mainly driven by increases in employment in municipalities. The growth in employment in municipalities can in part be attributed to increases in government transfers as part of Nicaragua’s decentralization process. However, an important weakness of the decentralization framework is that revenue transfers have not been explicitly linked to expenditure responsibilities.
Structure of compensation across and within institutions in the public sector
10. There are significant differences in average compensation levels across public institutions. Autonomous entities and institutions of other powers of state11 have compensation levels that differ significantly from the line ministries which are under direct payroll control by the Ministry of Finance (MOF). The former entities have significantly more discretion to set their compensation levels. More specifically, autonomous entities and the powers of the state have average compensation levels that are more than twice as high as in line ministries.
Average Wage
(in cordobas per month excluding social contributions and 13th month salary)
Average Wage
(in cordobas per month excluding social contributions and 13th month salary)
| 2003 | 2004 | 2005 | |
|---|---|---|---|
| Powers of the State | 10,479 | 10,358 | 11,367 |
| Line Ministries | 3,940 | 4,140 | 4,584 |
| Autonomous Entities | 10,734 | 9,260 | 10,215 |
| State Financial Institutions | 11,227 | 12,253 | 13,497 |
| Local Governments | 5,220 | 5,409 | 5,926 |
Average Wage
(in cordobas per month excluding social contributions and 13th month salary)
| 2003 | 2004 | 2005 | |
|---|---|---|---|
| Powers of the State | 10,479 | 10,358 | 11,367 |
| Line Ministries | 3,940 | 4,140 | 4,584 |
| Autonomous Entities | 10,734 | 9,260 | 10,215 |
| State Financial Institutions | 11,227 | 12,253 | 13,497 |
| Local Governments | 5,220 | 5,409 | 5,926 |
11. The presence of donor projects in specific institutions also contributes to observed disparities in compensation levels. In certain institutions with significant donor projects, salaries for both technical and high level positions are indexed to the dollar and tend to be relatively high. A significant part of the wage bill in autonomous entities is financed by donors. In 2005, more than half of the budgeted compensation expenditures in these institutions were related to donor projects.
12. The differences in compensation are also important within public institutions. A recent study commissioned by the World Bank Civil service reform project in Nicaragua covering 12 public sector institutions12 argues that public sector institutions in Nicaragua tend to have competitive salaries at lower-level positions, while technical and managerial positions are underpaid with respect to the formal private sector.13 In addition, the study shows that it is common for positions that require similar skill levels to be paid differently, especially at high levels of complexity. Further, it is not atypical that positions at lower levels of complexity be paid more than more complex ones.
Institutional Features of Compensation and Employment Policies
13. Nicaragua does not have a consistent employment and compensation policy in the public sector. Before 2003, the determination of wages and employment in public institutions was based exclusively on the availability of funds and discretionary decisions on how to allocate these. In addition, anecdotal evidence suggests that significant staffing changes normally occur after elections at all levels of government. This lack of consistent compensation and employment policies has been reflected in significant differences within and across institutions, and in the evolution in the levels of employment at the central and local government level.
14. In 2003, the government passed a civil service law to modernize and formalize compensation and employment policies. The law establishes the government entities that are in charge of civil service issues and their responsibilities led by the MOF, employment eligibility criteria for the civil service, rights, obligations and a disciplinary regime for civil servants, a system of job classification, and a compensation system which should reflect the principles of equity (same pay for same job) and competitiveness of remuneration with respect to other public sector institutions and the private sector. In addition, the law creates career paths for civil servants on the basis of merit and requires the creation and maintenance of an up to date database on civil service personnel for adequate human resource management.
15. In 2004, there were policy efforts to create a compensation system in line with the principles laid out in the civil service law. According to the job classification system laid out in the civil service law, positions should be classified according to their level of complexity. On the basis of a comparison of basic salaries within public sector institutions and within the private sector for jobs with the same level of complexity,14 a base reference salary table for 2005 and a target salary reference table to be implemented in the medium term were established. The base reference salary table for 2005 was designed to make salaries more equitable within and across public sector institutions. The target wage reference table was set at 70 percent of the median of comparable formal private sector salaries. Specifically, in order to reduce inequities and advance toward the structure of the target reference salary table, the nominal salaries of employees whose salaries were above the reference salary would be frozen for as long as they remained above the reference, while the salaries of those employees with salaries below the reference would be adjusted by a fixed percentage in line with an overall resource constraints.
16. However, the methodology outlined in the civil service law does not apply to the main sectors of public employment. The reference table is not applied to health, education, the police or the army, which together represent about 80 percent of total central government employment.15 Some of these sectors (such as police, army personnel and teachers) have their own employment policies, pay scales, or their own job classification has proceeded slowly (Appendix Table 3). Wages in these key sectors continue to be determined by individual negotiations with the government and/or the Assembly.
17. The MOF has the responsibility to control the level of employment in most of the general government, but in practice this is limited. Control is likely to be limited to a subset of institutions for which the MOF has information on the number of positions, employment and where it has the capacity to monitor execution of the budget on a real time basis.16 Information is limited on temporary workers not funded through donor projects and on the number of political appointees. Donor project employment information remains limited (especially in projects executed by autonomous agencies), although a census on this topic is ongoing.
18. A rigid labor code makes adjustments in public employment and compensation policies difficult. In particular, the Law of Acquired Rights establishes than any benefit, including pay, given to any employee in the past cannot be eliminated or reduced, thereby becoming an “acquired right” for the worker. This law gives the worker the right to sue the government if it attempts to reduce compensation levels even if the conditions that underlay the original agreement are no longer realistic or relevant. This law also applies to donor financed consultants whose contracts have been renewed more than twice, creating a significant contingent liability for the government.
C. Issues for Discussion
Main reasons underlying the high and increasing remuneration costs
19. The key difficulties in implementing consistent employment and compensation policies relate to broader issues of executive control. There are three main problems. First, the constitution gives the Assembly discretionary powers to change the overall budget ceiling and the composition of spending that is proposed by the executive. Second, the MOF cannot scrutinize the budgets of autonomous entities and therefore is not able to constrain their employment and compensation proposals. Third, the judiciary and public universities are funded by fixed, constitutionally mandated, transfers from the budget (defined as percentages of total government expenditures), which limits the ability of the government to spend on poverty reduction. These entities cannot be controlled by the MOF, which allows them to increase employment and wages on a discretionary basis.
20. Limited executive control entails significant risks for the budget. The highly politicized negotiations of wage increases results in situations where a compromise is agreed upon without careful consideration of costs and implications for the macroeconomic framework. This has resulted in large wage increases, as well organized groups of public employees lobby the Assembly for higher wages while bypassing the MOF. For example, during negotiations of the 2005 budget, the Assembly approved significant salary increases for health workers and teachers, implying a 0.4 percent of GDP increase in remuneration expenditures.
21. The limited coverage of the economic classification makes it more difficult to quantify these risks. In spite of growth in compensation expenditures to public employees by 1.1 percent of GDP since 2000 to a level of 8.5 percent of GDP in 2006, the economic classification of the budget shows compensation expenditures at a level of 4 percent of GDP for 2005, slightly below the level of 2001. These discrepancies reflect that more than 50 percent of compensation expenditures in the budget are recorded in current transfers and capital expenditures,17 and that wage increases have tended to occur in institutions whose wage expenditures are classified outside the economic classification, such as the case of decentralized schools.
2005 Budget Decomposition
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
2005 Budget Decomposition
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
2005 Budget Decomposition
(in percent of GDP)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
22. In particular, a proliferation of bonus payments can be observed in the health and education sectors making it difficult to determine compensation levels. Bonuses account for more than 30 percent of the total compensation package of employees in these sectors.18 In particular, in the case of education, due to reporting problems with decentralized educational institutions, the size of transfer these entities receive that is actually spent on employee compensation is unclear. In addition, some of the bonuses in the education and health sectors are recorded as current transfers further complicating analysis. Moreover, the salary reference tables linked to the civil service law refer only to the fixed component of the compensation package leaving the door open to the proliferation of bonus payments as a way of bypassing the reference tables in the future.
23. The government payroll and information system (SIGFA) currently covers only about 45 percent of central government employees creating problems to adequately monitor employment and compensation levels. The quality of the reporting and coverage of public institutions which are outside the government payroll is particularly weak. Even though autonomous institutions and municipalities receive transfers from the budget, they are not required to report regularly their expenditure execution. Moreover, it is unclear whether they will have the technical capacity in the near term to begin such reporting on a precise basis. Some autonomous entities, such as universities, oppose regular reporting completely as they argue that this would threaten their autonomy.
24. The rapid employment growth in municipalities has contributed to an increase in compensation costs. In addition to transparency problems in municipal finances, weaknesses in the recent decentralization process have contributed to increasing compensation costs. Six percent of total budget revenues have been devolved to municipalities without corresponding expenditure responsibilities.19 In particular, the municipal transfers law establishes a scheme that redistributes revenues in favor of small municipalities and fixes the distribution between current and capital spending. For smaller municipalities, 40 percent of transfer revenues should be dedicated to current expenditure. With this provision, current expenditures are likely to be higher than historical experience may suggest. Without additional well defined expenditure responsibilities, it is likely that the recent trend increase in employment and salaries at the municipal level will continue.
25. The current labor code has forced the authorities to implement the civil service law only gradually. The Law of Acquired Rights directly implies that compensation levels of workers, paid more than would be implied by the base reference table, cannot be reduced. On top of improving equity, lowering high salaries could help finance improved salary levels of underpaid workers. Further, it is difficult to reduce employment or hire less costly temporary workers. The labor code sets very stringent conditions on the justification for firing an employees at a relatively low cost. If a temporary worker’s contract is renewed more than twice, the worker automatically acquires the rights of a permanent worker.
26. Additionally, donor projects create particular challenges for containing compensation costs. Donor projects, which are by nature temporary, have been used to finance permanent government positions. As a result, this creates problems when the projects finish and personnel need to be absorbed back into the permanent government staff or separated. Since the salaries paid in donor projects tend to be significantly higher than the ones allowed by the reference salary tables linked to the civil service law, the Law of Acquired Rights implies that their salary cannot fall if they are incorporated into the government. Moreover, severance payments can still be significant.20
Implications for the budget’s flexibility and poverty focus, macroeconomic stability and competitiveness.
27. Increasing remuneration costs could imply reduced budget flexibility and spending efficiency. The overall size of public employee compensation is estimated to be about 8½ percent of GDP in 2005 and 2006. As the share of government spending on compensation increases, it reduces the ability of the government to adjust in response to shocks, given that the rigid labor code essentially impedes any rapid short term adjustment of compensation in a low-inflation environment. As such, adjustments would probably occur in areas such as reductions in multiyear capital spending projects or cuts in maintenance, which could adversely affect the efficiency of overall public spending.
28. Earmarking and other budget rigidities also hamper the government’s ability to cope with shocks. Preliminary calculations by the staff show that about 2/3 of total expenditures in 2005 are non-discretionary. Interest payments, wages and salaries, transfers to municipalities, public universities, and the judiciary; as well as social security expenditures are difficult to change. These rigidities in the budget would force the government, in case of a negative shock, to cut productive investment or increase taxes. The latter has been a common policy response by the government in the last years. For example, the authorities introduced a tax reform in 2003 that yielded around 1.0 percent of GDP and in 2005 revenue measures amounted to ½ percent of GDP in order to compensate for expenditure overruns approved by the Assembly.
29. Compensation spending in the budget does not appear to benefit the poorest households. The 2001 living standards household survey shows that government wages represent less than 9 percent of the income of the poor and of total government wages only 14 percent are paid to the poor.21 There is evidence that indicates that the poorest have generally low levels of education and work in the informal sector. As such, government compensation spending benefits, disproportionately, the richest households. Increasing expenditures on wages and salaries could therefore imply reducing the poverty reduction focus of budget.
Share of Total Government Earnings Accruing to each Quintile of Total Income Distribution, 2005
(1 = Poorest Income Quintile)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Share of Total Government Earnings Accruing to each Quintile of Total Income Distribution, 2005
(1 = Poorest Income Quintile)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Share of Total Government Earnings Accruing to each Quintile of Total Income Distribution, 2005
(1 = Poorest Income Quintile)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
30. Rapid public sector wage growth risks putting pressure on private wages and inflation. The private sector is not as strongly unionized as the public sector. Anecdotal evidence suggests strong unions represent public sector workers in collective bargaining negotiations, but the same cannot be said for private sector employees. However, as the difference between average public sector wages and average private sector wages in the formal sector increases, the risk of demonstration effects driving higher private sector wage demands and setting off a wage-price spiral loom larger.
Nominal Average Public Sector Wage Index and the CPI, Jan. 2001-May 2005
(January 2001=100)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Nominal Average Public Sector Wage Index and the CPI, Jan. 2001-May 2005
(January 2001=100)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
Nominal Average Public Sector Wage Index and the CPI, Jan. 2001-May 2005
(January 2001=100)
Citation: IMF Staff Country Reports 2006, 173; 10.5089/9781451829273.002.A002
31. As such, increasing public sector compensation risks having a negative effect on competitiveness. Most foreign direct investment (FDI) is attracted to the formal sector, including the operations of major exporting firms. As the government remains an important formal sector employer, growth in real public sector compensation far in excess of the private sector risks eventually putting pressure on labor costs in the formal sector. This would pose risks to the competitiveness of the formal export sector, and undermine Nicaragua’s attractiveness as an investment location, with respect to neighboring countries.
D. Conclusions
32. It will be important to strengthen control over public sector employment and compensation in the medium term, while seeking to make the labor code more flexible. Looking ahead, it will be helpful to reform the legal framework to strengthen the budget process by: (i) establishing ceilings for overall spending and key spending items including compensation costs early on in the budget process in line with a consistent macroeconomic framework; (ii) incorporating decentralized entities into the budget; and (iii) reducing earmarking of revenues for specific institutions or functions. On the other hand, compensation policies, such as the concept of acquired rights for temporary workers, and restrictions on more flexible employment arrangements, weaken the flexibility of the labor market.
33. Expanding the implementation of the civil service law to a broader range of the public sector should be considered. This would allow for completing job classification exercises across the entire public sector, subjecting all public institutions to a wage reference table and an overall resource constraint for wage increases in line with what has already been done for only a subset of public institutions. Public sector compensation should be defined as broadly as possible in order to minimize loopholes that may violate the spirit of the wage policy that the authorities want to pursue. Extending the application of the civil service law could also help to allay concerns regarding disparities in compensation within the public sector by allowing differential adjustments to wages and employment across institutions and within institutions.
34. The significant increase in the municipalities’ payroll should be contained until a more effective decentralization can be achieved. These increases in payroll, reflecting mostly increases in employment, seem related to revenue transfers that have been provided to municipalities without the corresponding transfer of expenditure responsibilities. It would be helpful to consider avoiding further increases in employment at the municipal level until proper expenditure responsibilities are defined and transferred to them. This should be complemented with improvements in reporting that would allow for monitoring of these entities that is currently unavailable.
35. It will be important to increase the transparency of public sector compensation to raise public awareness about employment and compensation policy decisions. Wages and salaries should be more clearly identified in the budget to incorporate compensation expenditures in current transfers and capital expenditures for all central government entities, including autonomous entities. At the same time, a significant improvement in the periodicity and quality of financial reporting is needed. Further, all institutions included in the budget should also be incorporated into the government’s financial reporting system (SIGFA). This would allow the MOF to monitor their budget execution in real time, including compensation expenditures using the new legal framework provided by the FAL. If extending SIGFA to local governments proves to not be technically feasible, a reliable financial reporting system for municipalities should be implemented to try and ensure that reporting on the basis of economic classification is carried out.
APPENDIX
Number of Government Employees by Government Bodies
On the basis of INSS data for the first 4 months of 2005. Data for the ministry of the interior, the ministry of defense, the ministry of education, and the decentralized and autonomous schools are on the basis of processing of ministry of finance information by the Central Bank of Nicaragua.
Number of Government Employees by Government Bodies
| 2000 | 2001 | 2002 | 2003 | 2004 | 20051/ | |
|---|---|---|---|---|---|---|
| Government bodies | ||||||
| National Assembly | 459 | 466 | 534 | 688 | 639 | 582 |
| Supreme Court of Justice | 3398 | 3178 | 2936 | 2954 | 3069 | 3266 |
| Supreme Electoral Council | 2019 | 2496 | 1443 | 821 | 962 | 978 |
| Comptroller of the Republic of Nicaragua | 387 | 416 | 416 | 415 | 432 | 509 |
| Presidency and Vice Presidency of the Republic | 639 | 603 | 531 | 454 | 466 | 492 |
| Ministry of Labor | 321 | 325 | 319 | 306 | 304 | 300 |
| Ministry of Finance | 1430 | 794 | 874 | 746 | 707 | 692 |
| Ministry of Industry and Commerce | 434 | 495 | 498 | 536 | 587 | 595 |
| Ministry of Transportation and Infrastructure | 1011 | 984 | 1002 | 946 | 1092 | 1240 |
| Ministry of Agriculture and Forestry | 747 | 741 | 777 | 777 | 800 | 825 |
| Ministry of Foreign Affairs | 359 | 462 | 504 | 509 | 532 | 529 |
| Ministry of the Environment and Natural Resources | 504 | 526 | 468 | 449 | 456 | 471 |
| Ministry of the Family | 824 | 814 | 803 | 678 | 569 | 667 |
| Ministry of Education, Culture and Sports | 15427 | 14301 | 13257 | 13726 | 12120 | 9866 |
| Decentralized and Autonomous Schools | 20472 | 21532 | 22647 | 23053 | 28034 | 30601 |
| Ministry of Health | 22915 | 23298 | 23008 | 22709 | 22649 | 22678 |
| Ministry of the Interior | 8464 | 8,972 | 9,511 | 9,901 | 10,215 | 10,492 |
| Ministry of Defense (including Army of Nicaragua) | 11,140 | 11,140 | 11,263 | 11,638 | 11,721 | 11,846 |
| Attorney General of the Republic Office | 208 | 206 | 73 | 95 | 108 | 124 |
| Sub total main government bodies | 91,157 | 91,749 | 90,865 | 91,401 | 95,461 | 96,752 |
| Decentralized bodies | ||||||
| Nicaraguan Institute for Municipalities promotion | 237 | 253 | 265 | 261 | 209 | 221 |
| Nicaraguan Institute for Culture | 245 | 261 | 252 | 257 | 190 | 252 |
| Nicaraguan Institute for Territorial Studies | 458 | 434 | 433 | 394 | 393 | 410 |
| Institute of Statistics and Census | 240 | 217 | 189 | 166 | 182 | 401 |
| Institute of Youth and Sports | 104 | 99 | 112 | 130 | 139 | 177 |
| Nicaraguan Institute for Women | 35 | 35 | 28 | 25 | 31 | 29 |
| Tax Collection Agency | 923 | 1259 | 1303 | 1326 | 1410 | 1361 |
| Customs Agency | 650 | 746 | 819 | 816 | 828 | 863 |
| Institute of Agricultural Technology | 484 | 457 | 265 | 268 | 266 | 266 |
| Nicaraguan Institute for Agriculture and Forests | 224 | 269 | 240 | 229 | 224 | 249 |
| Radio Nicaragua | 67 | 71 | 71 | 73 | 74 | 67 |
| Ruben Dario National Theatre | 84 | 81 | 87 | 86 | 88 | 94 |
| Office for the Defense of Human Rights | 66 | 64 | 75 | 74 | 67 | 72 |
| Public Ministry | 0 | 0 | 219 | 290 | 377 | 677 |
| Superintendency of Pensions | 0 | 0 | 51 | 53 | 59 | 59 |
| Superintendency of Banks | 103 | 106 | 104 | 113 | 134 | 155 |
| Nicaraguan Institute of Energy | 33 | 20 | 15 | 9 | 175 | 268 |
| Nicaraguan Institute of Water and Sanitation | 52 | 54 | 55 | 55 | 54 | 54 |
| Nicaraguan Institute of Social Security | 1084 | 1170 | 1139 | 1130 | 1122 | 1151 |
| Nicaraguan Institute for Rural Development | 227 | 167 | 192 | 232 | 248 | 248 |
| Nicaraguan Institute for Urban and Rural Housing | 0 | 0 | 0 | 65 | 86 | 86 |
| Nicaraguan Institute for Support to Small and Medium | ||||||
| Enterprises | 1 | 1 | 1 | 1 | 1 | 1 |
| Nicaraguan Institute of Tourism | 240 | 265 | 287 | 282 | 291 | 329 |
| Corporation of Free Zones | 34 | 42 | 76 | 75 | 79 | 97 |
| Emergency Social Fund | 427 | 440 | 418 | 398 | 415 | 441 |
| Road Maintenance Fund | 0 | 0 | 0 | 13 | 21 | 22 |
| Universities | 3275 | 3229 | 3452 | 3798 | 3993 | 4053 |
| Sub total decentralized bodies | 11,291 | 9,740 | 10,147 | 10,615 | 11,158 | 12,101 |
| Total central government | 102,447 | 101,489 | 101,012 | 102,016 | 106,619 | 108,853 |
| State financial institutions | ||||||
| Central Bank of Nicaragua | 784 | 814 | 862 | 788 | 807 | 870 |
| Nicaraguan Institute of Insurance | 21 | 22 | 25 | 25 | 26 | 25 |
| Rural Credit Fund | 0 | 0 | 11 | 33 | 35 | 34 |
| Nicaraguan Financial Institution for Investment | 54 | 61 | 61 | 63 | 63 | 72 |
| Sub total state financial institutions | 859 | 896 | 958 | 908 | 930 | 1,000 |
| Local governments | ||||||
| Municipalities | 8446 | 8713 | 9330 | 9995 | 10799 | 12103 |
| Regional Government of the North Atlantic | 52 | 152 | 170 | 266 | 313 | 302 |
| Regional Government of the South Atlantic | 79 | 97 | 57 | 74 | 85 | 87 |
| Regional Council of the North Atlantic | 42 | 53 | 59 | 73 | 76 | 75 |
| Regional Council of the South Atlantic | 59 | 53 | 40 | 60 | 70 | 76 |
| Sub total local governments | 8,677 | 9,068 | 9,656 | 10,469 | 11,343 | 12,643 |
| Total general government | 111,984 | 111,453 | 111,626 | 113,393 | 118,892 | 122,497 |
On the basis of INSS data for the first 4 months of 2005. Data for the ministry of the interior, the ministry of defense, the ministry of education, and the decentralized and autonomous schools are on the basis of processing of ministry of finance information by the Central Bank of Nicaragua.
Number of Government Employees by Government Bodies
| 2000 | 2001 | 2002 | 2003 | 2004 | 20051/ | |
|---|---|---|---|---|---|---|
| Government bodies | ||||||
| National Assembly | 459 | 466 | 534 | 688 | 639 | 582 |
| Supreme Court of Justice | 3398 | 3178 | 2936 | 2954 | 3069 | 3266 |
| Supreme Electoral Council | 2019 | 2496 | 1443 | 821 | 962 | 978 |
| Comptroller of the Republic of Nicaragua | 387 | 416 | 416 | 415 | 432 | 509 |
| Presidency and Vice Presidency of the Republic | 639 | 603 | 531 | 454 | 466 | 492 |
| Ministry of Labor | 321 | 325 | 319 | 306 | 304 | 300 |
| Ministry of Finance | 1430 | 794 | 874 | 746 | 707 | 692 |
| Ministry of Industry and Commerce | 434 | 495 | 498 | 536 | 587 | 595 |
| Ministry of Transportation and Infrastructure | 1011 | 984 | 1002 | 946 | 1092 | 1240 |
| Ministry of Agriculture and Forestry | 747 | 741 | 777 | 777 | 800 | 825 |
| Ministry of Foreign Affairs | 359 | 462 | 504 | 509 | 532 | 529 |
| Ministry of the Environment and Natural Resources | 504 | 526 | 468 | 449 | 456 | 471 |
| Ministry of the Family | 824 | 814 | 803 | 678 | 569 | 667 |
| Ministry of Education, Culture and Sports | 15427 | 14301 | 13257 | 13726 | 12120 | 9866 |
| Decentralized and Autonomous Schools | 20472 | 21532 | 22647 | 23053 | 28034 | 30601 |
| Ministry of Health | 22915 | 23298 | 23008 | 22709 | 22649 | 22678 |
| Ministry of the Interior | 8464 | 8,972 | 9,511 | 9,901 | 10,215 | 10,492 |
| Ministry of Defense (including Army of Nicaragua) | 11,140 | 11,140 | 11,263 | 11,638 | 11,721 | 11,846 |
| Attorney General of the Republic Office | 208 | 206 | 73 | 95 | 108 | 124 |
| Sub total main government bodies | 91,157 | 91,749 | 90,865 | 91,401 | 95,461 | 96,752 |
| Decentralized bodies | ||||||
| Nicaraguan Institute for Municipalities promotion | 237 | 253 | 265 | 261 | 209 | 221 |
| Nicaraguan Institute for Culture | 245 | 261 | 252 | 257 | 190 | 252 |
| Nicaraguan Institute for Territorial Studies | 458 | 434 | 433 | 394 | 393 | 410 |
| Institute of Statistics and Census | 240 | 217 | 189 | 166 | 182 | 401 |
| Institute of Youth and Sports | 104 | 99 | 112 | 130 | 139 | 177 |
| Nicaraguan Institute for Women | 35 | 35 | 28 | 25 | 31 | 29 |
| Tax Collection Agency | 923 | 1259 | 1303 | 1326 | 1410 | 1361 |
| Customs Agency | 650 | 746 | 819 | 816 | 828 | 863 |
| Institute of Agricultural Technology | 484 | 457 | 265 | 268 | 266 | 266 |
| Nicaraguan Institute for Agriculture and Forests | 224 | 269 | 240 | 229 | 224 | 249 |
| Radio Nicaragua | 67 | 71 | 71 | 73 | 74 | 67 |
| Ruben Dario National Theatre | 84 | 81 | 87 | 86 | 88 | 94 |
| Office for the Defense of Human Rights | 66 | 64 | 75 | 74 | 67 | 72 |
| Public Ministry | 0 | 0 | 219 | 290 | 377 | 677 |
| Superintendency of Pensions | 0 | 0 | 51 | 53 | 59 | 59 |
| Superintendency of Banks | 103 | 106 | 104 | 113 | 134 | 155 |
| Nicaraguan Institute of Energy | 33 | 20 | 15 | 9 | 175 | 268 |
| Nicaraguan Institute of Water and Sanitation | 52 | 54 | 55 | 55 | 54 | 54 |
| Nicaraguan Institute of Social Security | 1084 | 1170 | 1139 | 1130 | 1122 | 1151 |
| Nicaraguan Institute for Rural Development | 227 | 167 | 192 | 232 | 248 | 248 |
| Nicaraguan Institute for Urban and Rural Housing | 0 | 0 | 0 | 65 | 86 | 86 |
| Nicaraguan Institute for Support to Small and Medium | ||||||
| Enterprises | 1 | 1 | 1 | 1 | 1 | 1 |
| Nicaraguan Institute of Tourism | 240 | 265 | 287 | 282 | 291 | 329 |
| Corporation of Free Zones | 34 | 42 | 76 | 75 | 79 | 97 |
| Emergency Social Fund | 427 | 440 | 418 | 398 | 415 | 441 |
| Road Maintenance Fund | 0 | 0 | 0 | 13 | 21 | 22 |
| Universities | 3275 | 3229 | 3452 | 3798 | 3993 | 4053 |
| Sub total decentralized bodies | 11,291 | 9,740 | 10,147 | 10,615 | 11,158 | 12,101 |
| Total central government | 102,447 | 101,489 | 101,012 | 102,016 | 106,619 | 108,853 |
| State financial institutions | ||||||
| Central Bank of Nicaragua | 784 | 814 | 862 | 788 | 807 | 870 |
| Nicaraguan Institute of Insurance | 21 | 22 | 25 | 25 | 26 | 25 |
| Rural Credit Fund | 0 | 0 | 11 | 33 | 35 | 34 |
| Nicaraguan Financial Institution for Investment | 54 | 61 | 61 | 63 | 63 | 72 |
| Sub total state financial institutions | 859 | 896 | 958 | 908 | 930 | 1,000 |
| Local governments | ||||||
| Municipalities | 8446 | 8713 | 9330 | 9995 | 10799 | 12103 |
| Regional Government of the North Atlantic | 52 | 152 | 170 | 266 | 313 | 302 |
| Regional Government of the South Atlantic | 79 | 97 | 57 | 74 | 85 | 87 |
| Regional Council of the North Atlantic | 42 | 53 | 59 | 73 | 76 | 75 |
| Regional Council of the South Atlantic | 59 | 53 | 40 | 60 | 70 | 76 |
| Sub total local governments | 8,677 | 9,068 | 9,656 | 10,469 | 11,343 | 12,643 |
| Total general government | 111,984 | 111,453 | 111,626 | 113,393 | 118,892 | 122,497 |
On the basis of INSS data for the first 4 months of 2005. Data for the ministry of the interior, the ministry of defense, the ministry of education, and the decentralized and autonomous schools are on the basis of processing of ministry of finance information by the Central Bank of Nicaragua.
Progress in Job Classification in Affected Institutions as a Share of the Total Number of Positions
Progress in Job Classification in Affected Institutions as a Share of the Total Number of Positions
| Percent of Implementation | |||
|---|---|---|---|
| Institutions | November 2002 | November 2003 | November 2004 |
| National Assembly | 38.0 | 10.8 | 23.3 |
| Supreme Court of Justice | 3.4 | 7.5 | 12.8 |
| Supreme Electoral Council | 0.6 | 0.6 | 4.0 |
| Comptroller of the Republic of Nicaragua | 7.2 | 20.4 | 22.3 |
| Presidency of the Republic | 2.9 | 46.8 | 46.5 |
| Ministry of the Interior | 0.0 | 0.0 | 0.0 |
| Ministry of Foreign Affairs | 8.1 | 11.8 | 16.8 |
| Ministry of Defense | 0.0 | 1.0 | 1.0 |
| Ministry of Finance | 93.2 | 91.1 | 94.7 |
| Ministry of Industry and Commerce | 98.9 | 98.9 | 98.9 |
| Ministry of Education, Culture and Sports | 4.7 | 0.9 | 1.8 |
| Ministry of Agriculture and Forestry | 0.5 | 0.6 | 99.2 |
| Ministry of Transportation and Infrastructure | 99.1 | 99.1 | 99.1 |
| Ministry of Health | 0.0 | 0.0 | 0.0 |
| Ministry of Labor | 0.0 | 99.0 | 99.0 |
| Ministry of the Environment and Natural Resources | 97.9 | 97.8 | 97.8 |
| Ministry of the Family | 91.0 | 92.0 | 99.2 |
| Nicaraguan Institute for Women | 0.0 | 9.1 | 91.7 |
| Attorney General of the Republic of Nicaragua | 0.0 | 11.5 | 97.9 |
| Nicaraguan Institute for Municipalities Promotion | 0.0 | 9.2 | 98.2 |
| Institute of Statistics and Census | 0.0 | 0.0 | 97.6 |
| Nicaraguan Institute of Territorial Studies | 100.0 | 100.0 | 100.0 |
| National commission for Energy | 0.0 | 0.0 | 0.0 |
| Nicaraguan Institute of Culture | 0.0 | 99.5 | 99.5 |
| Institute of Youth and Sports | 98.8 | 97.6 | 98.8 |
| Total | 5.5 | 5.7 | 7.9 |
Progress in Job Classification in Affected Institutions as a Share of the Total Number of Positions
| Percent of Implementation | |||
|---|---|---|---|
| Institutions | November 2002 | November 2003 | November 2004 |
| National Assembly | 38.0 | 10.8 | 23.3 |
| Supreme Court of Justice | 3.4 | 7.5 | 12.8 |
| Supreme Electoral Council | 0.6 | 0.6 | 4.0 |
| Comptroller of the Republic of Nicaragua | 7.2 | 20.4 | 22.3 |
| Presidency of the Republic | 2.9 | 46.8 | 46.5 |
| Ministry of the Interior | 0.0 | 0.0 | 0.0 |
| Ministry of Foreign Affairs | 8.1 | 11.8 | 16.8 |
| Ministry of Defense | 0.0 | 1.0 | 1.0 |
| Ministry of Finance | 93.2 | 91.1 | 94.7 |
| Ministry of Industry and Commerce | 98.9 | 98.9 | 98.9 |
| Ministry of Education, Culture and Sports | 4.7 | 0.9 | 1.8 |
| Ministry of Agriculture and Forestry | 0.5 | 0.6 | 99.2 |
| Ministry of Transportation and Infrastructure | 99.1 | 99.1 | 99.1 |
| Ministry of Health | 0.0 | 0.0 | 0.0 |
| Ministry of Labor | 0.0 | 99.0 | 99.0 |
| Ministry of the Environment and Natural Resources | 97.9 | 97.8 | 97.8 |
| Ministry of the Family | 91.0 | 92.0 | 99.2 |
| Nicaraguan Institute for Women | 0.0 | 9.1 | 91.7 |
| Attorney General of the Republic of Nicaragua | 0.0 | 11.5 | 97.9 |
| Nicaraguan Institute for Municipalities Promotion | 0.0 | 9.2 | 98.2 |
| Institute of Statistics and Census | 0.0 | 0.0 | 97.6 |
| Nicaraguan Institute of Territorial Studies | 100.0 | 100.0 | 100.0 |
| National commission for Energy | 0.0 | 0.0 | 0.0 |
| Nicaraguan Institute of Culture | 0.0 | 99.5 | 99.5 |
| Institute of Youth and Sports | 98.8 | 97.6 | 98.8 |
| Total | 5.5 | 5.7 | 7.9 |
Number of Positions and Employment for a Subset of Public Institutions
Annual average; for 2005 average January-June in Central Government.
Number of Positions and Employment for a Subset of Public Institutions
| 2005 | ||
|---|---|---|
| Institutions | Number of Positions | Employment |
| National Assembly | 429 | 419 |
| Supreme Court of Justice | 2,971 | 2,841 |
| Supreme Electoral Council | 231 | 185 |
| Comptroller of the Republic of Nicaragua | 414 | 406 |
| Presidency of the Republic | 412 | 375 |
| Ministry of Labor | 309 | 302 |
| Ministry of Finance | 606 | 579 |
| Ministry of Industry and Commerce | 284 | 274 |
| Ministry of Transportation and Industry | 333 | 318 |
| Ministry of Agriculture and Forestry | 364 | 358 |
| Ministry of Foreign Affairs | 315 | 312 |
| Ministry of the Environment and Natural Resources | 145 | 140 |
| Ministry of the Family | 437 | 418 |
| Attorney General of the Republic of Nicaragua | 113 | 107 |
| Nicaraguan Institute for Municipalities promotion | 57 | 49 |
| Nicaraguan Institute for Culture | 336 | 312 |
| Nicaraguan Institute of Territorial Studies | 261 | 259 |
| Institute of Statistics and Census | 46 | 43 |
| Institute of Youth and Sports | 89 | 86 |
| Nicaraguan Institute for Women | 24 | 21 |
| National Commission for Energy | 7 | 7 |
| Subtotal | 8,182 | 7,812 |
| Ministry of Education, Culture and Sports | 10,214 | 9,866 |
| Ministry of Health | 21,595 | 20,685 |
| Ministry of the Interior | 10,667 | 10,492 |
| Defense (sum of Ministry of Defense and Army) | 12,149 | 11,846 |
| Total | 62,807 | 60,701 |
| Ministry of Defense | 3,039 | 2,736 |
| Army | 9,110 | 9,110 |
Annual average; for 2005 average January-June in Central Government.
Number of Positions and Employment for a Subset of Public Institutions
| 2005 | ||
|---|---|---|
| Institutions | Number of Positions | Employment |
| National Assembly | 429 | 419 |
| Supreme Court of Justice | 2,971 | 2,841 |
| Supreme Electoral Council | 231 | 185 |
| Comptroller of the Republic of Nicaragua | 414 | 406 |
| Presidency of the Republic | 412 | 375 |
| Ministry of Labor | 309 | 302 |
| Ministry of Finance | 606 | 579 |
| Ministry of Industry and Commerce | 284 | 274 |
| Ministry of Transportation and Industry | 333 | 318 |
| Ministry of Agriculture and Forestry | 364 | 358 |
| Ministry of Foreign Affairs | 315 | 312 |
| Ministry of the Environment and Natural Resources | 145 | 140 |
| Ministry of the Family | 437 | 418 |
| Attorney General of the Republic of Nicaragua | 113 | 107 |
| Nicaraguan Institute for Municipalities promotion | 57 | 49 |
| Nicaraguan Institute for Culture | 336 | 312 |
| Nicaraguan Institute of Territorial Studies | 261 | 259 |
| Institute of Statistics and Census | 46 | 43 |
| Institute of Youth and Sports | 89 | 86 |
| Nicaraguan Institute for Women | 24 | 21 |
| National Commission for Energy | 7 | 7 |
| Subtotal | 8,182 | 7,812 |
| Ministry of Education, Culture and Sports | 10,214 | 9,866 |
| Ministry of Health | 21,595 | 20,685 |
| Ministry of the Interior | 10,667 | 10,492 |
| Defense (sum of Ministry of Defense and Army) | 12,149 | 11,846 |
| Total | 62,807 | 60,701 |
| Ministry of Defense | 3,039 | 2,736 |
| Army | 9,110 | 9,110 |
Annual average; for 2005 average January-June in Central Government.
Prepared by Jordi Prat and Alejandro Simone.
Defined as the sum of compensation expenditures in the main government bodies and autonomous entities. See section B.
While cross country comparisons are always fraught with difficulties, an attempt is made here to discuss broadly comparable central government wage bill definitions in the region.
Both wage series are derived from the social security institute database and are based on the same definition of compensation. Even though compensation could be defined more broadly, there is no evidence to conclude that these elements have systematically behaved differently in the last years. Furthermore, this appears to be the most comprehensive data series available. For example, the ministry of labor’s database includes private sector firms with more than 20 employees, while INSS’s database includes every private sector employee that contributes to social security.
Public sector employment is defined as the sum of employment in the main bodies of government, autonomous institutions, public sector financial institutions and local governments as defined in Appendix Table 1 (about 123,000 employees) plus employment in public enterprises estimated at 18,662 in the employment survey of November 2004. Most of the data in Appendix Table 1 was obtained from the social security agency (INSS) and the Central Bank of Nicaragua. Some potential discrepancies between sources remain in employment in decentralized entities and local governments.
Given the magnitude in terms of employment, Appendix Table 1 also shows decentralized schools separately and not in the figures of the Ministry of Education. Law 290 on the organization of the executive branch gives these institutions technical autonomy to provide educational services, but they are not considered independent legal entities. They are directly subordinated to the Ministry of Education and receive transfers from the budget.
Unlike decentralized institutions, according to Law 290, autonomous institutions have technical and administrative autonomy. This means that they are considered independent legal entities, and in particular, can determine their own level of wages. The level of employment legally must be within the ceiling of the number of positions determined by the budget. They report either to a parent line ministry or to the president of the republic. These institutions also receive transfers from the budget.
Universities are also decentralized entities and are mostly funded by the budget. The specific share of financing from the budget to universities dedicated to compensation is not available as no financial information is available on these institutions.
These include the National Assembly, the Supreme Court, the Supreme Electoral Council, the Comptroller office of the Republic of Nicaragua and the Attorney General Office of the Republic of Nicaragua.
Caution needs to be exercised when interpreting local government data. Data on local governments was obtained indirectly from the INSS database since direct information from the local governments was not available.
Other powers of the state include the Supreme Court, the Presidency and Vice-presidency of the Republic, the National Assembly, the Electoral Council, and Comptroller General of the Republic, and the Office of the Attorney General.
These institutions are the following ministries: Health, Finance, Labor, Agriculture and Forestry, Family, Environment and Natural Resources, Transportation and Infrastructure, and Industry and Commerce; and these autonomous entities: Nicaraguan Institute for Women, Institute for Youth and Sports, Nicaraguan Institute for Territorial Studies and Nicaraguan Institute for Culture. These institutions represent about 24 percent of central government employment.
In fact, there is a possibility for lower level positions to be overpaid with respect to the private sector. The study clarifies that the analysis only focuses only on fixed remuneration and does not include variable remuneration which, unlike in the private sector, seems to be quite prevalent at lower level positions in the public sector.
The reference table is based on information gathered from the same 12 public sector institutions described in footnote 12.
In addition, the reference table is still not applied in many autonomous institutions as positions have not been classified yet.
Appendix Table 3 suggests that the number of employees covered may include less than 50 percent of the total employees.
Compensation of personnel involved in donor projects is recorded as personnel costs in capital expenditures.
The fixed component of the salary was computed as the basic salary plus social security contributions plus contributions for the National Institute of Technology.
In 2006 the approved budget maintains the same level of transfers (6 percent of tax revenues), but it also cuts central government capital spending on municipalities in 2006 by about ½ of devolved revenues, with respect to 2005.
Preliminary results from a census of personnel involved in donor projects suggest that there are about 1,500 consultants (but anecdotal evidence suggests the number could be as high as 3,000) that could imply contingent liabilities of 0.8 percent of GDP in terms of financing their positions permanently and paying separation payments if donor financing were not to materialize.
Poor individuals are defined here to be those in quartile 1 and 2 of the income distribution, corresponding roughly to the definition of those below the poverty line in the household survey data.
