Editorial | Public-sector salary reform sensible

WHILE WE understand, and sympathise with, the Private Sector Organisation of Jamaica’s (PSOJ) concern that the Government’s wage bill could spiral out of control and undermine the fiscal gains of recent years, this newspaper nonetheless supports Dr Nigel Clarke’s initiative to restructure how the State compensates its workers.

We, however, have one proviso: better pay should lead to a more efficient public sector, which is implicit in the project upon which the Government has embarked. It is supposed to be a broad reform of the public sector, albeit one that has been going on, in some form, for the better part of a quarter of a century. Further, while we take as valid the PSOJ’s worry about the costs of the proposed salary adjustment, it is not clear from the organisation’s public pronouncement that it is comparing apples with apples.

For transparency – as we did in 2019 when we urged a rational debate of then Opposition Leader Peter Phillips’ call for a review of the Government’s legal obligation to maintain a wage bill of no more than nine per cent of gross domestic product (GDP) – this newspaper reminds that it had previously insisted that Jamaica’s economic targets under the International Monetary Fund programmes be rigorously adhered to. Or, the very best effort be made to do so. We are not about Jamaica returning to the fiscal profligacy of the past and of public-sector jobs being used as political patronage, rather than to deliver genuine services to the economy.

Dr Clarke, in 2019, was not in agreement with this review. Perhaps he feared that any public endorsement of that position would be like opening the dykes. But as he remarked this week, “policymaking is always about trade-offs”. He said: “At the current time, the structure of public-sector compensation is unsustainable. The public sector is unable to attract ... (and) retain the skills and the competencies we need to run a modern bureaucracy”.

A PLACE FOR GIFTED PEOPLE

Which is the most compelling argument for the salary upgrades, as well as a critical call for a different perspective to be taken of a future Jamaican public sector, especially the core civil service. It should not be the place where only people deeply committed to public service or second-rate talent go for jobs. It should be a workplace of choice for gifted people, where they earn competitive salaries.

But achieving this will require an exhaustive review of the public sector’s Byzantine compensation system, with its 40 bargaining units, 345 wages grades and 40 allowances. Which is what the consulting firm EY was employed to do, and has since delivered its findings to the administration. The specific details of the reclassifications proposed by EY have not been published, but it is clear that fixing the problems, and fashioning a public sector of highly skilled workers, cannot be accommodated with a cap of nine per cent of GDP at Jamaica’s current level of output. And especially when around eight cents on the dollar go towards compensating teachers, the security forces and healthcare workers – sectors that require more staff.

Indeed, as Bruce Golding, the former prime minister, observed in a 2019 sympathetic review of Peter Phillips’ suggestion for a range, rather than a fixed ratio, of the wage-to-GDP band, achieving the nine per cent target would be very difficult. And that is without going after, and retaining, top talent. “...With each incremental reduction, the next one is even more difficult, and that curtailment of critical government services is too high a price to pay for meeting the target and is counterproductive,” Mr Golding wrote.

CLEARLY UNSUSTAINABLE

Or, as Dr Clarke framed the issue this week: “We can’t sit idly by and allow what is clearly unsustainable to continue. We will be engaging in a comprehensive restructuring of public sector compensation ... but it does not stand on its own.” Increased salaries, he noted, was “one element in a suite of reforms”. Others include the sharing of services, the rationalisation of public bodies, and an overarching human resources management system for the public sector.

In the new fiscal year, which starts in April, the Government projects a wage bill $268.285 billion, which, on the face of it, is a rise of around $45 billion, or 20 per cent above the previous fiscal year. That lifts the wage-to-GDP ratio from 9.9 per cent in fiscal year 2021-22 to 10.8 per cent in 2023-24. However, the figures in the upcoming Budget includes compensation-related expenditures which were previously captured as part of the recurrent spending on programmes. In other words, the raw compensation figures, without deeper analysis, overstate the rise in the wage bill for the 2022-23 fiscal year.

This clean-up, of course, will not apply in the following fiscal year, 2023-24, when the wage bill is projected to rise another $34.5 billion, a nominal 12.8 per cent. The wage bill, then, will be equivalent to 11.4 per cent of GDP, or an increase of 0.6 percentage points, compared to the previous year. Indeed, between this coming fiscal year, the first year of the reform, and the end of the pay adjustment period in 2025-26, the wage bill is projected to rise by $125 billion, or around 56 per cent. However, its proportion of GDP is expected to have risen by only 0.7 percentage points, to 11.5 per cent.

What we propose now is that the Government is held accountable for the taxpayers’ money it proposes to spend, which should translate to a more honest, efficient and productive public sector, whose efforts will catalyse economic growth. Should that happen, the wage-to-GDP ratio, over the longer term, will hardly be a matter of concern.