How the Great Recession Concentrated Public Minds

April 15, 2010   by By Ben Eisen, Frontier Centre Policy Analyst

The deep recession from which the Canadian economy appears to have emerged caused real pain for hundreds of thousands of people. Jobs were lost, hours cut, and retirements postponed.

It does not trivialize the hardship suffered by so many to point out that the same hardship made those in government concentrate on how to manage public money. In the process, governments identified a major long-term threat to Canada’s fiscal health—the rapidly escalating pay levels of public servants—at the federal and provincial level.

The past decade has been a boon for public servants at the municipal, provincial and federal levels. According to Statistics Canada, the weekly wages for the average worker in the economy increased by 28% between 1998 and 2008. Salaries grew at a considerably faster rate at all three levels of government. Municipal public administration workers saw their wages increase by an average of 33% during this same period. The average weekly wage for provincial public administration workers increased by 45% during these years, while federal public administration workers saw an increase of 54 per cent.

Unsustainable trend
Government salaries are paid with tax money raised from the private sector tax base.

But if a major expense continues to grow at a faster rate than revenues, it becomes harder to balance the books. For this reason, the escalating wages of public servants relative to everyone else will cause serious problems for the Canadian economy over time if there is no concerted effort by governments to significantly slow down these trends.

The recession has forced policymakers to recognize this problem and begin to address it.

When times were good, tax revenues were high. Governments were able to make ends meet despite rapid public sector wage growth. Some may have recognized that a long-term problem existed, but there appeared to be no urgent need to address it. But as the recession drove revenues down, and governments needed to avoid even worse deficits, some have correctly identified slowing the growth of public sector wages as a necessary cost-control measure.

New Brunswick took the lead in 2009, announcing a two-year wage freeze for all civil servants.

Earlier this year, the federal government followed New Brunswick’s lead, announcing a pay freeze for MPs and Senators. Though this act was largely symbolic, as it applied to a small number of people, it reflected a realization that the growth of public sector salaries must be brought under control. As collective bargains for federal public servants reach their conclusion in coming years, it’s reasonable to hope the federal government will limit wage growth for other federal employees.

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