Do Government Employees Earn More?

According to a study by the Fraser Institute this year, public sector workers in Ontario enjoy a 13.4% compensation advantage over their private sector counterparts.

“Using data on individual workers from January to December 2015, this report estimates the wage differential between the government and private sectors in Ontario. It also evaluates four available non-wage benefits in an attempt to quantify compensation differences between the two sectors. After controlling for such factors as gender, age, marital status, education, tenure, size of firm, type of job, industry, and occupation, Ontario’s government sector workers (from the federal, provincial, and local governments) were found to enjoy a 13.4 percent wage premium, on average, over their private sector counterparts in 2015. When unionization status is factored into the analysis, the wage premium for the government sector declines to 10.3 percent.

The available data on non-wage benefits suggest that the government sector enjoys an advantage over the private sector. For example, 82.1 percent of government workers in Ontario are covered by a registered pension plan, compared to 25.2 percent of private sector workers. Of those covered by a registered pension plan, 97.0 percent of government workers enjoyed a defined benefit pension compared to just under half (45.1 percent) of private sector workers.

In addition, government workers retire earlier than their private sector counterparts—about 1.4 years on average—and are much less likely to lose their jobs (3.2 percent in the private sector versus 0.5 percent in the public sector). Moreover, full-time workers in the government sector lost more work time in 2015 for personal reasons (10.9 days on average) than their private sector counterparts (6.8 days).”

While I often take studies by the Fraser Institute with a grain of salt – in terms of objectivity they’re on a par with those of the Canadian Centre for Policy Alternatives – in this case they probably have a point.

The thing is that public sector workers have much better benefits than those in the private sector. Specifically their pensions are – in the Finance Minister’s own words “are at a level that they (i.e. most Canadians) can only dream about”.

Of course I don’t believe that public sector workers actually believe that they are better paid than their private sector counterparts. The value of their tax-free, indexed pensions are clearly too high. However a young family with kids can’t live on gilt-edged pensions that they will start to enjoy long after their kids are grown.

‘public sector workers don’t actually believe that they are better paid than their private sector counterparts’

In the mean time they won’t be able to afford housing in Canada’s most expensive housing markets. That puts government departments like the Canada Revenue Agency in a difficult position. How do they provide services in high cost markets like Vancouver and Toronto, if they can’t afford ‘competitive wages’ (not including retirement benefits) in those centres?

The simple answer – don’t bother. Instead they will replace skilled people with processes – and do most of their processing in lower cost communities where wages are lower. This means that small businesses will absorb most of the costs of the resulting inefficiencies.