Reducing the public sector wage bill

Bank of Greece Governor Nicholas Garganas’s remark last week that salary increases for public servants, budgeted by the previous government for 2004, have been «outrageous» has drawn the expected protests. Average gross pay in the public sector has gone up 8.4 percent this year, against 5.8 percent in the private sector. The increase was defended on the reasonable grounds that employees’ social security contributions had gone up, and also with the unreasonable pretext that productivity had improved in the public sector. Additionally, public servants received bonuses related to the March elections and the Olympic Games. To be sure, there was no economic justification for such increases; public spending, particularly as regards its wage bill, always rises significantly in an election year, and this now poses an additional burden on an already serious fiscal situation – although this is by no means the only negative effect. The country’s public administration system has a tendency to resort to additional hirings to meet service requirements, rather than reward those who have been, in fact, more productive. Usually, ministries go into battle with one another over which will hire more, and it is viewed as reasonable not to have a large divergence of pay between the new entrants and the senior staff who, because of experience and responsibility, should be better compensated. The pay rises are limited during one’s career in public service and there is no method of financially rewarding someone with an obvious or proven high performance. This absence of a system of rewards is a stumbling block to productivity. A public servant has no opportunity to better his income by working more – unless he has other, illegitimate, sources. If such are not available or desired, he has to find another job in the private sector, which is against the law. Public spending increases at high rates because it concerns a large number of people. But the problem of utilizing it rationally is even more serious. In effect, it is an alibi of governments that can only create jobs this way. If red tape is reduced and public departments are adequately equipped, if hirings are made on the basis of productivity criteria and flexibility in human resources management, the government will reduce its wage bill. But it will reveal the actual level of underemployment.