Public Sector Wage Research Articles

Austerity and labour market deregulation: High risks and weak justifications

16 | International Union Rights | 24/1 FOCUS | WORLD BANK AND IMF Austerity and labour market deregulation: High risks and weak justifications Financial crises can affect labour rights in a number of ways. Obviously, financial crises may reduce economic growth and employment and impair the right to work. However, in addition, governments have often undertaken reform measures that directly — such as reduction in wages and employment in the public sector aimed at reducing public expenditure or labour market deregulation in the private sector purportedly to increase competiveness — or indirectly — by creating economic conditions which increase pressure on workers, reducing wages or threatening employment, for example through privatisation of public enterprises, trade liberalisation or cutting domestic subsidies — affect labour rights. Labour-related austerity policies have been openly pushed by a number of official key creditors, including the World Bank and the International Monetary Fund (IMF), together, more recently, with the European Commission and the European Central Bank — the so-called Troika. Especially since the late 1980s, labour-related conditionality has featured prominently in IMF financial assistance programmes. Indeed, around 50 percent of all lending programmes have involved one or more labour-related conditions over the period from 1994 to 2007. Since then, the number of IMF programmes with labour conditionalities appears to have fallen, but still, between 25 to 40 percent of IMF programmes adopted until 2014 contained labour-related conditions relating to the public or the private sector1. International financial institutions have promoted labour law deregulation not only through formal conditionality to financial assistance arrangements. IMF has also made use of other instruments to advocate for deregulatory labour reforms, such as its Article IV consultations in the context of its bilateral macroeconomic surveillance2. These involve a certain amount of pressure and may also affect a country’s capacity to obtain financing elsewhere, given that potential or actual investors and bilateral lenders often have recourse to these reports3. Labour law issues in economic adjustment programmes While IMF has occasionally supported moderate improvements in labour standards4, its prevalent stance regarding labour law has been a deregulatory one. Close to one third of the available letters of intent addressed by governments to IMF between 1998 and 2005 contained commitments to be flexible with labour market regulation5. Early cases can be tracked to the 1950s, such as when IMF required Argentina to control wage increases. Adjustment measures implemented during the 1980s in the context of the Mexican debt crisis entailed a considerable reduction in both the number of public employees and their salaries, among others. The relevant reforms ranged from minor modifications to comprehensive reform packages with far-reaching amendments to both collective and individual labour laws. For example, during the 1990s, Côte d’Ivoire undertook reforms in the context of an IMF/World Bank-supported economic adjustment programme, which included the deregulation of the rules concerning temporary employment, dismissal and overtime, and involved the decentralisation of the collective bargaining system. Similarly, the structural adjustment programme carried out in Argentina during the 1990s entailed individual labour law reforms, involving, for instance, extending the duration of the probation period and collective labour law reforms, which granted firm-level agreements priority over sectoral agreements. In recent years, austerity-driven labour law reforms have remained a widespread trend. No fewer than 89 countries implemented such reforms Austerity-driven labour law reforms have remained a widespread trend. As a result, the level of protection of labour law has been substantially reduced Juan Pablo Bohoslavsky is the United Nations Human Rights Council-appointed Independent Expert on foreign debt and human rights Austerity-related labour law reforms between 2010 and 20157 9 18 40 34 East Asia and Pacific Highincome countries Number of austerity-related labour law reforms Number of cuts in or caps on public sector wages 3 7 6 8 South Asia Middle East/ North Africa 11 14 12 17 Latin America/ Caribbean Eastern Europe/ Central Asia 8 32 SubSaharan Africa FOCUS | WORLD BANK AND IMF 17 24/1 | International Union Rights | between 2010 and 2015 and more than half (49) of them were implemented in developing countries. In addition, 130 countries had reportedly implemented or were contemplating cuts in or caps on publicsector salaries, more than two...

Public Sector Wage and Inflation in Ghana

Achieving price stability has been in the orbit of concern of state authorities for time immemorial. This paper is therefore focused on determining empirically the impact of public wage bill on inflation in Ghana for the period of 1986-2014. Using an Autoregressive Distributed Lag (ARDL) to cointegration model, it was discovered from the study that public wage bill, currency depreciation rate, money supply, and fiscal deficit all have significant impact on inflation in Ghana. The outcome of this study postulates that the rate of inflation determination in Ghana is also a fiscal phenomenon in spite of the significant and domineering role played by monetary expansion. Consequently, equal attention must be accorded both fiscal and monetary policy in the fight against the rate of inflation in Ghana for appreciable and sustained result.

The public sector wage premium and fiscal consolidation in Serbia

Responding to a high fiscal deficit, the Serbian government introduced a set of fiscal consolidation measures at the beginning of 2015, including a 10% public sector wage cut. This paper analyses the difference in wages between the public and the private sector in Serbia and changes in the public sector wage premium after the measures were introduced. The results show that, similarly to many other countries, wages in the Serbian public sector are on average higher than in the private sector, partially due to the better labour market characteristics of public sector workers. The public sector wage premium was 17.4% in 2014 and was mainly driven by higher returns to education, work experience, and occupation in this sector. In 2015 the premium dropped by 6 percentage points due to a lessening of the difference in returns between the sectors. Therefore, in addition to reducing budget expenditures, fiscal consolidation in Serbia has reduced wage inequality between these sectors.

Informality, Public Employment and Employment Protection in Developing Countries

This paper proposes an equilibrium matching model for developing countries' labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers' flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.

Inequality in Brazil: A Regional Perspective

In this study, we document the decline in income inequality and a convergence in consumption patterns in Brazilian states in a new database constructed from micro data from the national households’ survey. We adjust the state-Gini coefficients for spatial price differences using information on households’ rental prices available in the survey. In a panel regression framework, we find that labor income growth, formalization, and schooling contributed to the decline in inequality during 2004-14, but redistributive policies, such as Bolsa Familia, have also played a positive role. Going forward, it will be important to phase out untargeted subsidies, such as public spending on tertiary education, and contain growth of public sector wages, to improve budgetary efficiency and protect gains in equality.

The effects of public sector employment on the economy

Public sector jobs are created because governments opt to provide goods and services produced directly by public employees. Governments, however, may also choose to regulate the size of the public sector in order to stabilize targeted national employment levels. However, economic research suggests that these effects are uncertain and critically depend on how public wages are determined. Rigid public sector wages lead to perverse effects on private employment, while flexible public wages lead to a stabilizing effect. Public employment also has important productivity and redistributive effects.

Heterogeneity and the Public Sector Wage Policy

A model with search and matching frictions and heterogeneous workers was established to evaluate a reform of the public sector wage policy in steady-state. The model was calibrated to the UK economy based on Labour Force Survey data. A review of the pay received by all public sector workers to align the distribution of wages with the private sector reduces steady-state unemployment by 1.4 percentage points.

Public-Private Sector Wage Differentials in Australia

This paper examines wage differentials between public sector and private sector workers in Australia. After controlling for observed characteristics and individual fixed effects, we show that on average workers in the public sector earn about 5.1% percent more hourly wages than those in the private sector. The wage premium is slightly higher for females than males. Using a panel data quantile regression model with fixed effects, we show that the positive wage effects of public sector employment are heterogeneous, with comparatively larger impact at the lower end of the wage distribution than at other parts. We also find evidence of heterogeneity in the public sector wage premiums by qualification, time period, occupation and state/territory.

Public-Sector Employment in an Equilibrium Search and Matching Model

We extend the Diamond-Mortensen-Pissarides model of equilibrium unemployment to incorporate public-sector employment. We calibrate our model to Colombian data and analyze the effects of public-sector wage and employment policy on the unemployment rate, on the division of employment between the private and public sectors, and on the distributions of wages in the two sectors.

Calendar and seasonal effects on the size of withdrawals from ATMs managed by Euronet

This study analyses the calendar effects on withdrawals from Automated Teller Machines (ATMs) (daily data) managed by the Euronet network for the period from January 2008 to March 2012. Our study focuses on the identification of specific calendar and seasonal effects in the ATM cash withdrawal series of the company in the Polish provinces of Małopolska and Podkarpackie. The results of the analysis show that withdrawals depend strongly on the day of the week. On Fridays more cash is withdrawn than on other days, and Saturdays and Sundays are the days of the week with the lowest level of withdrawals. In a month, it can be seen that cash withdrawals take place more often in the second and in the last weeks of the month. This observation suggests that withdrawals from ATMs can be related to the profile of wage withdrawals. In Poland, in the public sector wages are paid at the beginning of the month, and in the private sector at the end of the month. The time series of withdrawals also reflect seasonality. The largest amounts are withdrawn in July, August and December. Reason for the increased demand for cash are the summer holidays and the Christmas season. The results reflect consumer habits which show pronounced calendar and seasonal effects.

Calendar and Seasonal Effects on the Size of Withdrawals from Atms Managed By Euronet

Abstract This study analyses the calendar effects on withdrawals from Automated Teller Machines (ATMs) (daily data) managed by the Euronet network for the period from January 2008 to March 2012. Our study focuses on the identification of specific calendar and seasonal effects in the ATM cash withdrawal series of the company in the Polish provinces of Małopolska and Podkarpackie. The results of the analysis show that withdrawals depend strongly on the day of the week. On Fridays more cash is withdrawn than on other days, and Saturdays and Sundays are the days of the week with the lowest level of withdrawals. In a month, it can be seen that cash withdrawals take place more often in the second and in the last weeks of the month. This observation suggests that withdrawals from ATMs can be related to the profile of wage withdrawals. In Poland, in the public sector wages are paid at the beginning of the month, and in the private sector at the end of the month. The time series of withdrawals also reflect seasonality. The largest amounts are withdrawn in July, August and December. Reason for the increased demand for cash are the summer holidays and the Christmas season. The results reflect consumer habits which show pronounced calendar and seasonal effects.

Fiscal Consolidation in a Low Inflation Environment: Pay Cuts Versus Lost Jobs

We construct a model of a monetary union to study fiscal consolidation in the Periphery of the euro area, through cuts in public sector wages or hiring when the nominal interest rate is constrained at its lower bound. Consolidation induces a positive wealth effect that increases demand, as well as a reallocation of workers towards the private sector, which together boost private activity. However, in a low inflation environment, demand is suppressed and the private sector is not able to absorb the additional workers. Comparing the two instruments, cuts in public hiring increase unemployment persistently in this environment, while wage cuts reduce it. Regions with higher mobility of labour between the two sectors are able to consolidate more effectively. Price flexibility is also key at the zero lower bound: for a higher degree of price rigidity in the Periphery, consolidation becomes harder to achieve. Consolidations can be self-defeating when the public good is productive, or a complement to private consumption.

On the Cost of Opportunistic Behavior in the Public Sector: A General-Equilibrium Approach

This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between opportunistic behavior of government bureaucrats and the public sector wage bill. In particular, public officials are modeled as individuals competing for a larger share of those public funds. A simple extraction technology in the government administration is introduced in a standard real-business-cycle setup augmented with detailed public sector. The model is calibrated to German data for the period 1970–2007. The main findings are: (i) the model performs well vis-a-vis the data; (ii) due to the existence of a significant public sector wage premium and the high public sector employment, a substantial amount of working time is spent in opportunistic activities, which, in turn, leads to significant losses in terms of output; and (iii) the model-based loss measures obtained for the EU-12 countries are highly correlated to indices of bureaucratic inefficiency.

The public sector wage premium in Spain: Evidence from longitudinal administrative data

This paper studies the public sector wage gap in Spain, by gender, skill level and type of contract, using recent administrative data from tax records. We estimate wage distributions in the presence of covariates separately for men and women in the public and in the private sectors, and we take advantage of the longitudinal structure of the data to control for selection. We find a positive public wage premium for men and women even after accounting for characteristics and endogenous selection; the observed average gap in hourly wages of 35 log points is reduced to 20 when accounting for observed characteristics, and to 10 once endogenous selection is also taken into consideration. We also find substantial variation in the public premium along the wage distribution once observed characteristics are accounted for. This variation, however, is offset by opposite patterns of selection into the public sector: while we observe positive selection into the public sector at the bottom of the wage distribution, workers at the top of the distribution select negatively into the public sector.

Market and Political Power Interactions in Greece: An Empirical Investigation

In this paper, using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self employed taxation gap (TSL) in Greece and to a lesser extent in Spain and Portugal, in a manner that is consistent with an “insiders-outsiders society” (IOS). That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power, but at the same time cooperate in influencing government in protecting and promoting their collective self interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mechanism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanism of WPR and TSL for Greece and to a lesser extent for Spain and Portugal, are quite different from the rest of the OECD countries. For example, in Greece, unlike the other OECD countries in the sample, a positive temporary shock in WPR causes TFP and output to fall and the public and current account deficits to increase. We take the TFP/output growth and the shock propagation mechanism results to provide strong evidence that Greece and to a lesser extent Spain and Portugal behave like IOS. For that matter, these results are important in order to understand the Greek crisis.

Salaires et emploi dans les secteurs public et privé. Différences et interactions

Les différences de conditions salariales et d’emploi entre les secteurs public et privé n’existent pas seulement dans les comparaisons statiques mais aussi dans les dimensions dynamiques telles que la croissance des salaires avec l’expérience, la volatilité des salaires et la sécurité dans l’emploi. Nous documentons d’abord les différences intersectorielles statiques et dynamiques d’emplois et de salaires dans six pays européens pendant la période 19942001 à l’aide de la base de données fournie par le European Community Household Panel. Nous sommes ainsi en mesure de présenter une évaluation des primes du secteur à long terme dans ces pays. Nous proposons ensuite un modèle structurel permettant de quantifier une réponse de l’ensemble du marché du travail à différentes alternatives de choix politiques en termes d’emplois et de salaires dans le secteur public. Cette approche structurelle nous permet d’évaluer et de comparer l’impact potentiel de différentes politiques visant à réduire la masse salariale du secteur public.

The Welfare and Employment Effects of Centralized Public Sector Wage Bargaining

In many countries, the government pays almost identical nominal wages to workers living in regions with notable economic disparities. By developing a two-region general equilibrium model with endogenous migration and search frictions in the labour market, I study the differences in terms of unemployment, real wages, and welfare between a regional wage bargaining process and a national one in the public sector. Adopting the latter makes residents in the poorer region better off and residents of the richer region worse off. Private sector employment decreases in the poorer region and it increases in the richer one. Under some conditions, the unemployment rate in the poorer region soars. Simulation results also show that a regional bargaining scheme may increase inequality.

Private Versus Public Sector Wage Gap: Does Origin Matter?

AbstractThe integration of immigrants and their children is a burning issue in France. Governments mainly build their integration policies on the labour market. The public sector is reputed to better assimilate minorities because of its entrance exams and pay scales. In this article, using a switching model, a comparison of the public and private sectors shows that second‐generation immigrants are not treated equally in both sectors. A wage gap is observed between workers of French origin and those of Southern European origin. The wage differential between workers of French and North African origins is mostly explained by observable variables.

A comparison of the wage structure between the public and private sectors in Japan

This study compares the wages in the public and private sectors in Japan. In addition to comparing overall wage levels, we examine the differences in the wage structures, specifically, the relative wages by gender, age, education, and region. The size of the public sector wage premium depends crucially on the size of the private companies chosen as the comparison group. Wage gaps by gender and educational attainment are smaller in the public sector than they are in private companies. The public sector's age–wage profile is steeper than that of the private sector. Public sector wages are more compressed. In other words, the wages are relatively higher at the lower end of the wage distribution and relatively lower at the higher end. The regional wage differentials are smaller in the public sector. Here, the wage levels of public sector workers are relatively higher in rural regions and relatively lower in large metropolitan regions. To ensure the efficient provision of public services, it is inappropriate to compare only mean wages.

A Comparison of the Wage Structure between the Public and Private Sectors in Japan

This paper compares the wage structure between the public and private sectors in Japan by using a large microdata set covering public and private sector employees. Rather than comparing overall wage levels, we examine the differences in relative wages by gender, age, education, and region. According to the estimation of wage functions, wage gaps by gender and educational attainment are smaller in the public sector than in private companies. The public sector’s age-wage profile is steeper than that of the private sector. Public sector wages are more compressed; the wages are relatively higher at the lower end of the wage distribution and relatively lower at the higher end. The regional wage differential is smaller in the public sector. As a result, the wage level of public sector workers is relatively higher in rural regions and relatively lower in large metropolitan regions. To ensure the efficient provision of public services, it is inappropriate to compare only average wages. We should carefully observe the differences in wage structure by individual characteristics and by region.