Unpacking the myth that public sector workers are overpaid

| July 4, 2012
Toronto rally, September 2011. Austerity is the order of the day at all levels of government. (Photo: postbear / flickr)

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Do public sector employees make too much money? The Canadian Federation of Independent Business (CFIB) thinks so. Their study from late 2008, entitled 'Wage Watch,' claims that public sector workers are overpaid by a whopping 24.9 per cent.

The CFIB would have us believe that public sector workers are ripe for a pay cut, and in 2009 Ontario's provincial government seemed to echo this. Hot off the press, the bloated Bill C-16 was born, loaded with austerity measures and accompanied by loud Conservative and Liberal cries for cutbacks. Non-unionized public sector workers were told that they would have their wages frozen, without hope for inflationary raises, for the next two years. Unions may be next on the chopping block.

This measure, of course, would seem utterly reasonable, if any of the statistical claims made by the CFIB had been true. However, economists like David MacDonald have found glaring errors with the report, setting the tone for an eerie deja-vu concerning cutbacks.

Are cutbacks common sense?

This latest call for reform is an uncomfortable throwback to the Harris government's 'Common Sense Revolution' of the 1990s, which left its own lasting scars on Canada's working class. Unfortunately, the current government is spearheading the same type of slashes. The only thing they aren't admitting, which Harris gleefully owned up to in 1995, is that these measures will shrink government regulation, services and employment.

The simple fact that the current government isn't referring to their actions as "The Common Sense Revolution, part two," should be an indication of how well exactly round one went. Social Security, pensions and other social assistance programs were cut by approximately 21 per cent and frozen. Overall, 500,000 people were disqualified from receiving welfare as a result (most without change in station, putting more strain on municipalities forced to provide housing and food-bank support) and others, including single mothers, were forced into "Ontario Works" programs where they did strenuous labour for below minimum wage. 

Workers faced a whole new set of challenges; school boards were amalgamated when unions would not comply, hospitals were shut down, regulatory positions were axed and there were long standoffs between public sector workers and the government.

While regulation was being described as "red tape," instances like the Walkerton water tragedy hinted that government oversight isn't always such a bad thing. A wage freeze, much like the one we have today, was also set in place.

Today, the same type of situation is once again ramping up, but there's nothing 'common sense' about it. Empirically, we know that these provisions aren't going to make any sort of discernible impact on the Canadian or even Ontario budget.

Government commitment to keeping the corporate income tax rates exceedingly low - it's fallen from 28 per cent in 1995 to 15 per cent in 2012 - remains intact even with the Liberal party. The Canadian Center for Policy Alternatives estimates that because of this number we have lost approximately $12 billion a year in revenue from the largest 200 corporations in the country. This is a staggering number, considering the pay freeze is estimated to save $2 billion a year, and so far 350,000 individuals, some making less than $25,000 a year, are being affected.

The trouble with the CFIB study on public sector workers

This statistic is especially troubling when you work through the claim that public sector employees make 24.9 per cent more annually and realize that this number is by all accounts inaccurate. David MacDonald, economist for the CCPA, found that the CFIB used a 'decomposition' technique to compare wages without factoring in relevant data to the study, meaning that the CFIB did not take into account differences in education, experience, race or gender.

The study simply ignored whether an individual was paid more because of qualification, because of a less stratified system or anti-discriminatory laws, and as a result of nothing being differentiated numbers were misrepresentative. MacDonald, along with Mueller who did the same type of study in 2000, found there to be very few discrepancies amongst caucasian male workers in the public and private sector, with Mueller finding they made 1.7 per cent less in the public.

Both MacDonald and Mueller found only two groups of people making on average more money in the public sector than in the private sector, and those are women and immigrants (most of the wage premium studies done over the last forty years have echoed this). Looking back at economic scholars like Shapiro, Stelcner, Prescott, Wandshneider and Gunderson, the numbers predicted about the public sector are nowhere near 25 per cent, with recent studies saying zero per cent or lower and past studies ranging from four to fourteen per cent in regards to white males in the public sector. 

The other group of individuals that the CFIB does not shed light on in their study are those in upper management. MacDonald found that private sector managers make a whopping 41 per cent more than public sector managers. Once again, public sector employment is less stratified generally. This leads to more people making a comfortable, living wage.

Of course, these checks and balances, concerning fair wages and job security, cannot stand strong without help. This Wage Freeze Act will produce overreaching changes that will wind up effecting a huge number of Canadians, making lasting changes just as the the 'Common Sense Revolution' did in 1995.

Pay freezes: Not for managers

First, pay freezes in the public sector have given those in management a loophole to continue receiving raises, with a provision for 'merit' written specifically into the legislation. This, coupled with a lack of oversight, has led to a growing pay gap between those on the top rung and those on the bottom rung. "We're leaving it to departments to determine how they are going to meet the freeze," says Daphne Meredith, Chief Human Resources Officer in Ontario, during a public hearing.

Specifically looking at the CFOs of Ontario's hospitals, the numbers in 2009 were largely fairly humble, with many receiving under $200 000 annually to run a hospital or health care organization. This goalpost has moved though. While a few of the biggest names with the largest organizations have actually cut back their wages in the face of austerity, many more have continued to profit. Of the 53 major CFO positions on the list, the average increase in income for each was roughly $26,707 dollars between 2010 and 2011. If you don't include the hospitals that employed a new CFO in that span, then the average for each is $18,041 dollars. (Processed through numbers provided by Ontario's 'Sunshine List.')

Another major concern is the labour unions. Although they narrowly missed being included in this freeze, many are fearful that they will be forced to comply in the near future. This type of push could change the power dynamic and the face of Canada's public sector (which, as of right now, is 80 per cent unionized).

Services too will foreseeably be squeezed, with the downsizing of departments and the lowering of wages. It is this type of insidious shift that should alarm us most as citizens. Unlike external threats or natural plagues, we face an internal menace that could change the face of our entire public sector.

It is crucial to remember that these cut backs are not theoretical or abstract, they have had and unfortunately will probably continue to have harsh, negative effects on thousands of ordinary Canadians, for no discernible gains, while managers profit and divides widen.

 

Leisha Senko is a journalism student at Laurier Brantford.

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Comments

Quote:

First, pay freezes in the public sector have given those in management a loophole to continue receiving raises, with a provision for 'merit' written specifically into the legislation. This, coupled with a lack of oversight, has led to a growing pay gap between those on the top rung and those on the bottom rung.

Public sector union concern with the loophole for management wages needs to be shouted loudly and clearly.

However, for the public to take that concern seriously, those same unions need to address the wage/benefit gaps between those on the top rung and those on the bottom rung among their own members and between different unions at the same facilities--I'm thinking here of teachers, on the one hand, and support staff, on the other, at schools and colleges, where I was once employed.

 

Shameless plug.  In Ontario you can see a list of the Public Salary Disclosure for those earning over $100,000 at http://www.thesunshinelist.ca however it does not include the recently discussed OHIP payments.

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