By Charles Lammam
and Milagros Palacios
The Fraser Institute
With many governments across Canada mired in red ink, B.C. Finance Minister Mike de Jong’s plan to balance the budget this year is a laudable goal.
But there are significant risks on the horizon in British Columbia – a major slowdown in the housing sector, a court-mandated reopening of negotiations with B.C. teachers, and expiration of our softwood lumber agreement with the U.S. to name a few – that could put B.C.’s balanced budget in peril, making it all the more important to control government spending.
With pay and benefits for government employees comprising approximately half of provincial program spending, controlling these costs is essential to prudent fiscal management.
And there’s ample reason to control compensation costs. Decades of research has shown that the wages and benefits of government employees tend to eclipse those for comparable private-sector workers. This is more than just an economics issue. It’s unfair that government workers receive a premium paid for by private-sector workers who receive less overall compensation for similar positions.
In a new Fraser Institute study, we provide the latest estimates of the government wage premium in B.C. Using Statistics Canada data from 2015, the study finds that government employees (federal, provincial and local) receive, on average, 7.4 per cent higher wages than comparable workers in the private sector. This wage premium accounts for differences between individual workers in the two sectors such as age, gender, education, tenure, experience and type of work.
But wages are just one component of total compensation, which includes pensions, early retirement and job security. As any business-owner or manager will tell you, it’s the total cost of compensation that matters rather than the individual components. Yet even on various non-wage benefits, the available data from Statistics Canada suggests that government employees in B.C. come out ahead.
First consider the imbalance on pensions, one of the costliest benefits provided to workers in both sectors. In 2015, nine of 10 government workers in B.C. (87.9 per cent) were covered by a defined benefit pension plan – which guarantees a level of benefits in retirement – compared to just one of 10 workers in the private sector (8.7 per cent).
Government-sector workers in B.C. also retire 2.5 years earlier, on average, than private-sector workers and they are away from their jobs for personal reasons 55 per cent more days per year (12.4 days vs. 8 days in the private sector).
When it comes to job security, another non-wage benefit, government workers have a distinct advantage. In 2015, three per cent of private-sector employment in B.C. experienced job loss – almost eight times higher than the 0.4 per cent of government-sector employment.
Of course, governments need to provide competitive compensation to attract qualified employees, but the fact is wages and benefits in the government sector are out of step with the private sector.
Unfortunately, rather than work towards reducing the compensation gap, Finance Minister Mike de Jong is taking B.C. in the other direction. He recently announced that 310,000 employees of the provincial government will receive an extra pay increase of 0.35 per cent starting next year – on top of a 5.5 per cent wage increase over five years.
As Minister de Jong prepares next month’s provincial budget, better control of spending will be key for delivering on his balanced budget commitment. Ensuring government-sector compensation broadly reflects private-sector compensation for similar positions can work to that end and maintain fairness for taxpayers who ultimately foot the bill.
Charles Lammam and Milagros Palacios are co-authors of the Fraser Institute study Comparing Government and Private Sector Compensation in British Columbia.