SHOULD PUBLIC SERVICE PAY BE CAPPED?

SMH, 25.6.11.

Four experts debate the merits of curbing the pay for the state’s nurses, teachers, fire fighters and bus drivers.

THE ECONOMIST: JEFF BORLAND

One of the big changes in the Australian labour market in the past 20 years has been the shift towards decentralised wage-setting, tailored to individual workplaces and industries increasingly exposed to international trade, new technology and changing patterns of employment.

Against that background the new public sector pay policy in NSW is a step back to the past. Of course, that does not necessarily make it a bad step. Having a centralised wage-setting system was for many years a good policy. It allowed wage increases during inflationary periods to be managed on an economy-wide basis, while providing equity in wage outcomes.

Advertisement: Story continues below So perhaps the NSW pay policy can be justified on these terms – as a way of seeking to control a wage break-out. The data suggests not.

First, there is no indication of rapid growth in public sector wages in NSW. Over the past 15 years, wages of public sector and private sector workers in NSW have moved closely together. Australian Bureau of Statistics data on the average weekly earnings of adult workers in NSW (working full-time ordinary hours) show that in the first time period for which data is available – August 1994 – the ratio of earnings of public sector to private sector workers was 107 per cent; in the last time period available – February 2011 – the ratio was also 107 per cent. In the past two years average earnings of public sector workers have increased at a slightly higher rate than private sector workers, but most of this relative growth occurred a year ago. In the past six months the ratio of public sector to private sector earnings in NSW has decreased.

Secondly, it doesn’t seem that wage increases in NSW overall have been excessive compared with the rest of Australia. For example, in the two years to February 2011, average weekly earnings of adults in NSW (working full-time ordinary hours) increased by 5.1 per cent a year, compared to 4.8 per cent in all Australia.

If there is little benefit to centralised wage-setting for public sector workers in NSW, what are likely to be the costs? There may be several. If you try to hold wage increases of public sector workers below the size of increases obtained in the private sector, you will lose talented workers to the private sector.

Also, a uniform wage increase for all public sector workers reduces the scope for responding to particular circumstances in specific public sector labour markets, thereby reducing efficiency. Where workers respond by adjusting their effort and working hours to what they think is fair based on their wages, you also get a lower quality of public services.

Jeff Borland is professor of economics at the University of Melbourne.



THE ACADEMIC: JOHN BUCHANAN

When setting pay for public sector workers the NSW Industrial Relations Commission has performed its function professionally and effectively.

Contrary to assertions from NSW Treasury, there has been no public sector wages ‘‘blowout’’. Research by Yury Andrienko and Serena Yu at Sydney University’s Workplace Research Centre confirms that when factors like education levels and time in the job are considered for NSW public sector workers, they are paid almost identical wages as their private sector counterparts.

Research I have undertaken shows that senior teachers, police officers and nurses are paid roughly the same as their interstate colleagues. If this policy had been in place since 2000, people in these positions would be between $9000 and $17,000 a year worse off. And this in a state with one of the highest costs of living in the country.

The courts give great weight to treating like cases alike when settling disputes. Consistency in the treatment of people in similar circumstances is widely recognised as the key feature of a civilised society that values fairness.

Allowing Treasury and not the independent umpire to set wages is unfair. More importantly, it is inefficient. Fair wages are crucial for maintaining motivation and underpinning a sustainable approach to recruitment and retention.

People with good teaching, nursing and policing skills are in high demand. If the NSW government does not reward them competitively, we will have big trouble staffing schools, hospitals, police stations and a host of other services with the personnel needed to provide quality public services.

The global financial crisis proved treasuries around the world are incapable of delivering policies that achieve sustainable, stable economic development. Why should we believe they have the answer on public sector pay?

There are problems in our economy today. It’s time to get serious about ending systemic tax avoidance. The tax support provided to high income earnings with private superannuation now costs more than all government expenditure on the public pension. Fiscal problems arise from problems in taxation as much as from public expenditure.

Arbitrarily capping wages is an easy way of saving public money in the short term. But at what long-term cost? Let’s have an informed, widespread debate on how to meet budget challenges and move beyond ill-informed, simple-minded public sector bashing.

Dr John Buchanan is director of the Workplace Research Centre at the University of Sydney Business School.

THE ADVISER: JOHN EGAN

From a government’s perspective, this question is about cost and efficiency. Is the issue wage levels or the rate of increase? Should the discussion extend to more highly paid professional and technical staff, as well as senior executives in public service?

There is a significant diversity of jobs in the public sector, from senior executives, professional, technical and administrative staff providing community services through to operating business enterprises. Many of these roles require well-trained and dedicated people deserving of fair pay and recognition of their contribution to the national good.

From the perspective of cost and efficiency, the challenge is broader than base-pay levels or pay increases and embraces terms and conditions of employment, including rostered days off; overtime payments; productivity; and the quality of leadership.

A key weakness of tribunals adjudicating on this diversity of public sector employees is, just like the private sector, that one size does not fit all. If a pay increase of 2per cent, 3per cent or 4per cent is considered appropriate for the least well-paid to meet living costs, should that flow through the entire workforce?

At what level of pay should performance be a more significant determinant of wage levels and wage increases?

Productivity is clearly a challenge in the public sector. If a commitment to efficiency and continuous improvement is not an embedded principle in government workforces, taxpayers are often paying more than they should for service and other outputs. As in the private sector, budget constraints lead to an audit of resources and an examination of staff performance.

Given the pressure on the Australian economy, with low unemployment, some of these cost pressures and wage challenges may well be addressed by the government considering the outsourcing of contracts and the sending of jobs offshore, releasing public servants to pursue more satisfying opportunities in the private sector.

Clearly one of the challenges in the public sector is meeting round-the-clock demand when employees have two to five weeks of RDOs available, plus personal carer’s leave, plus public holidays, plus annual leave. In a national workforce of one million this is likely to require governments to employ an extra 100,000 people, adding between $5 billion and $7 billion to the nation’s wages cost.

It is unlikely the challenge is one of wage levels or wage increases alone but more likely to be one of quality of leadership, clarity in government of accountability and training to ensure efficiencies are comparable to the best-run private companies.

John Egan is an adviser on executive pay.



THE UNIONIST: JEFF LAWRENCE

It is an attack on rights at work.

Public sector employees are no different from the rest of the workforce.

They are teachers, nurses, bus drivers, firefighters, park rangers, office workers and the countless others who keep public services in NSW running. And they face exactly the same cost of living pressures as everyone else.

The latest measure of employee living costs from the ABS shows these rose 4.9per cent in the past year.

An arbitrary cap on wages – whether public or private sector – bears no relation to the economy, nor to the necessity of maintaining the real value of earnings.

Imagine if your employer came to you and said: “Next year, I’m capping your wages at below inflation. No ifs, no buts, no negotiation. Take it or leave it.”

That’s effectively what the O’Farrell government’s 2.5per cent public sector wages cap will do. It will result in pay cuts for hundreds of thousands of people and their families.

But let’s not be fooled. The O’Farrell government’s Industrial Relations Amendment (Public Sector Conditions of Employment) Bill 2011 is not a wages policy. It is not a fiscal policy. It is an attack on rights at work, dressed up as a wages policy.

And for this reason, reversing these laws matters to every Australian worker and their family.

The O’Farrell government has been eager to portray its changes as identical to the wages policies that state Labor governments also adopt.

But this is a con job because it glosses over a crucial and central distinction. Unions regularly have stoushes with state governments – Labor and Liberal – over pay. And similar disputes are taking place in Europe and some US states over government austerity programs.

But it is a long accepted principle – and a requirement of international law – that the final outcome of any wage claim is a matter of negotiation and bargaining.

The O’Farrell government is not sitting down with their workforce to reach an agreement. It is changing the law – not only to dictate wage increases below the cost of living but also to cut important workplace conditions.

In no other state or territory has the government sought to implement a wages policy by stripping away workers’ rights.

No person or party who cares about working people, about Australian jobs or about the services in our community could support these laws.

Jeff Lawrence is secretary of the ACTU.