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Public sector fat cats?

Media Release
August 5 , 2008

Public sector fat cats?

With one eye on the upcoming election, public sector unions are pushing for big pay increases to lock in gains for their members before a possible change of government.

But public servants can hardly claim they’re currently underpaid, according to research by a University of Waikato Management School economist. The study, published in the New Zealand Journal of Employment Relations, shows that public sector employees already enjoy a substantial pay premium compared to workers in the private sector.

“The average pay differential between the public and private sector was between 17% and 21%,” says Professor John Gibson. “The study was based on 2005 data, so given the faster rate of public sector pay rises recently, the premium is likely to be even higher now.”

Prof Gibson’s study compared workers in the public and private sectors using data from the New Zealand component of the International Social Survey Program Work Orientations Survey – data that’s used for international labour market studies.

An important feature of the survey was that it also captured information on the characteristics of jobs, such as stress and whether hard physical work is involved, and the attitudes of workers to their jobs. No other New Zealand survey captures these details.

“The findings should be a valid estimate of what a given worker would gain when moving from the private to the public sector and doing an otherwise similar job,” says Prof Gibson. “Interestingly, because this study only compares like with like, it appears that higher pay levels in the public sector have little to do with needing to pay more to attract more skilled workers.”

Prof Gibson said he could find no justification for the premium in terms of job conditions in the public sector. “Some job factors -- like stress – may be worse in the public sector, but others -- like the work not being physically demanding and not being viewed by the worker as boring -- are better than for private sector workers. In addition, public sector workers appear to benefit much more from a ‘warm glow’ belief that in their job they can help others and that their job is useful to society.

“In competitive labour markets people would be willing to work for less to feel so good about themselves and their jobs. So the fact that public sector workers actually get paid 20% more is evidence of how out of line wage setting has been in the public sector.”


Overview of findings from “The Public Sector Pay Premium and Compensating Differentials in the New Zealand Labour Market”:

Public sector workers are:
• More highly educated (1.3 years more on average)
• More likely to be female (70% vs 46%)
• More likely to reside in the Wellington region
• More likely to believe a job should be useful to society
• More likely to find their job interesting and useful to society
• Less likely to do hard physical work
• Less able to work independently
• More likely to find their job stressful
• More likely to find work interferes with family life

Premium for public sector work:
• Raw premium (based on pay alone): 11%
• Including age, education, gender, ethnicity, martial status, location: 13%
• Including job attributes: 21%

Full paper available at: http://ideas.repec.org/p/wai/econwp/07-20.html

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