The Fraser Institute has produced a blog (1) suggesting that Ontario should reduce public servants’ salaries by about ten percent, to bring them in line with salaries in the private sector.
The blog points to information that public servants in Ontario, working for municipal, provincial and federal governments, earn more than their private sector counterparts. They also have better pension plans, take more paid time off during the year, and retire earlier. After recognizing that some of these workers are providing vital services during the pandemic, the bloggers suggest that the piper will need to be paid. They point to an Ontario deficit this year in excess of $30B (it will be more than that) and a provincial debt closing on half of provincial GDP. They suggest that the options are simple – reduced expenditures or higher taxes.
There are some obvious questions one could raise. For example, in suggesting more wage parity between the public and private sectors, do they extend that to the top managers? One of the top Ontario public servants, the Deputy Minister of Finance, earns in the range of $350 thousand per year. The CEO’s of Canadian banks, who often have comparable qualifications, earn about $12 million per year. (Ed Clark, who went from a position of Assistant Deputy Minister in Finance Canada to eventually become CEO of TD Bank, was asked on his retirement if bank presidents were paid too much and answered “Yes”). There is no mention in the blog if public-private pay alignment should take place at all levels, or only at the bottom. Generally speaking, the public sector is more generous to the lower-paid and median workers, but falls behind toward the upper end of the scale. (That is why many senior public servants dream of cushy corporate jobs on retirement). A “levelling down” would tend to undermine the bottom half of the scale and contribute to a more vulnerable work force.
There is also no suggestion in the blog that an alternative to reduced services or higher taxes might be to take advantage of the low interest rate environment which the Bank of Canada helped to create, to continue to stimulate the economy and have the debt reduced in relative terms by economic growth. This scenario has been alluded to by federal officials. Another useful article on the Fraser blog site, A Really Quick History of Canada’s Federal Debt, shows that we used that strategy in the past, and for example, never paid off the WW2 war debt. We just grew the economy until it was insignificant.
Nonetheless, the difference in pay scales is still important, and good for the Fraser Institute for raising it, even if a broader range of solutions might have been useful. Social Canada is currently doing a survey of working conditions in the nonprofit sector. Previous studies suggest that there is a significant gap between that sector and the public sector even where the service provided is directly comparable, and both are paid largely from the public purse. And because the overwhelming majority of employees in that sector are women, the difference also accounts for a substantial part of the gender pay equity issue.
An important question for Canadians when we emerge from the lockdown, is do we collectively hunker down for an austerity regime, reducing our services and living standards until the banks and big corporations of the world declare themselves healthy again?
I suggest we take another path. Let’s establish economic sector councils made up of representatives of business owners and workers. These councils can monitor wages and working conditions and recommend reference scales and objectives for the sector.
We can also introduce policy to improve the position of workers with below-median wages. A floor wage of 3/4 of the median wage in the region could be established, and if business can’t pay it right away, the workers would be subsidized to that level by the Canada Workers Benefit. Over time, minimum wages can be increased to support that. We should aim to bring pay and benefits of the nonprofit sector up to the standards set by comparable work or credentials in the public sector.
Of course we must also anticipate that some businesses, such as many in the retail industry, will not reopen. Others, like high tech and home delivery, will expand. Businesses will probably accelerate their plans to automate. We will need a period of continued borrowing and stimulus to work through this. Job losses will eventually be offset by new jobs, and by baby boomers who are retiring and needing more health and social care. We can expand investment in green technology and environmental protection and adjustment. If the recovery is slow and unemployment rises, the sector councils should then recommend a reduction in working time across all jobs in the sector. Work time reduction should be made flexible, to permit individuals to adopt useful combinations of work/training/family time. Federal and provincial governments should invest heavily in adult training and competency development. They get their investment back in higher tax revenues.
Some of these recommendations are further developed in a report, Future of Work Policies for the 2020’s, which I prepared for the Pearson Centre for Progressive Policy. It can be found on the Pearson site (thepearsoncentre.ca) or elsewhere on the SocialCanada.org site.