Will this unfair and unsustainable overcompensation of government employees ever end? It only will when Canadians decide they are sufficiently fed up to insist that governments deal with it and introduce a more reasonable pay scheme in which private and public sector are roughly equivalent and things like very generous pensions are factored into overall compensation so we are comparing apples to apples. That day can’t come soon enough. Photo Credit: The Canadian Press/Sean Kilpatrick.
A recent decision of an arbitrator in Ontario has determined that government employees in the province should receive an additional increase in pay of 6.5 per cent. This was the reaction to a government restraint policy called Bill 124 in 2019 that limited worker pay increases to one percent annually for three years.
This was not an unreasonable restriction considering the advantages government employees enjoy and the need to bring Ontario government budgets into balance. Still, this law was declared unconstitutional by an Ontario court on the basis that it infringed upon worker rights to freedom of association and collective bargaining. It’s interesting how the rights of private sector workers who pay for these generous settlements never seem to be taken into account by the courts.
The Ford government has appealed this ruling, as it should. However, considering how the courts have reacted in recent years to cases of this type, it is unlikely that the government will ultimately prevail. Ontario – and Canada, as this situation is not limited to Ontario – appear to be in an endless trap of paying government employees more and more for deteriorating public services with no relief on the horizon.
For many decades, government employees have enjoyed higher salaries, better benefits, rich pensions, much more job security, earlier retirements and other expensive goodies on the public dime. There have been many studies over the years comparing public to private sector compensation, and all have had the same conclusion – government employees are overpaid compared to the equivalent worker in the private sector, with much better benefits. The Fraser Institute has done consistent annual research on this topic, and the most recent findings in their 2023 report can be found here.
Once again, the research shows a significant gap between government and private sector compensation. The wage gap alone was estimated to be 10.9 per cent for 2021 (the last available year of data), in favour of government employees.
Non-wage benefits were also found to be significantly higher in the public sector. For instance, 83.9 per cent of government workers in Ontario are covered by a registered pension plan, as compared to 25.1 per cent of workers in the private sector. Even more important, fully 94.5 per cent of government workers enjoyed the gold standard of pensions – a defined benefit pension for which the ups and downs of investment returns are irrelevant because the worker is guaranteed to receive their full pension no matter what the markets do.
The reason this is guaranteed is because we the ever-generous taxpayer backs up these pensions when the markets in which they are invested collapse. Which means we subsidize government worker pensions at the expense of what we can afford to put away for ourselves.
The proportion of private sector workers who have defined-benefit pensions is a much lower 36.9 per cent, and declining. Unlike the government, companies in the private sector must compete in their marketplace and do not have the deep pockets of taxpayers to depend upon. The very costly defined benefit pensions are increasingly making private sector players uncompetitive as their costs increase with an aging population and people living much longer than when these pension plans were first designed.
Government workers also retire about two and a half years earlier than their private sector counterparts. When it comes to sick days, government employees took 14 days on average in 2021, whereas the private sector equivalent was significantly lower at 8.8 days. The fact that so many public sector “sick” days take place on a Friday or Monday reinforces the case that sick days are widely abused in government and that no one is making our so-called “public servants” accountable for this abuse.
History shows that arbitrators consistently rule in favour of government employees, with seemingly zero consideration for taxpayers. This must change, with the mandate of arbitrators altered to include consideration of the ability of taxpayers to pay among their criteria for decisions.
Even better would be if every government established an independent body to evaluate the differences between government and private sector compensation, including such things as the value of generous pensions and job security, and worked toward bringing public sector norms into line with the private sector that pays for government.
Another consideration is that the size of government has grown significantly in recent years. The cost of compensating government workers is therefore having an even greater impact on the productive private sector.
Government in Canada has grown at a faster pace than the private sector in recent years, which is one key reason for our declining productivity and falling standard of living. Other countries and jurisdictions have seen the results of an overly large government sector effectively bankrupting the economy, at which point everyone suffers and it takes a very long time for the economy to recover. Ask any Greek citizen how that financial disaster worked out for them.
Will this unfair and unsustainable overcompensation of government employees ever end? It only will when Canadians decide they are sufficiently fed up to insist that governments deal with it and introduce a more reasonable pay scheme in which private and public sector are roughly equivalent and things like very generous pensions are factored into overall compensation so we are comparing apples to apples. That day can’t come soon enough.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.