Thu | Dec 13, 2018

Allowances account for a third of GOJ wage bill

Published:Friday | September 22, 2017 | 12:00 AMMcPherse Thompson
Dr Constant Lonkeng Ngouana, IMF resident representative for Jamaica.

Allowances paid to public-sector workers in central government account for about a third of the wage bill, or more than $55 billion, according to a review conducted as part of Jamaica's agreement under the existing precautionary standby agreement with the International Monetary Fund (IMF).

And it appears the IMF believes the system is way too complicated.

"Going forward, it is important to rethink the extensive and inequitable system of allowances and the overall pay structure in the public sector," IMF Mission Chief to Jamaica Uma Ramakrishnan said in a statement released last week at the end of a visit to conduct discussions on the second review of Jamaica's financial and economic programme.

Asked earlier this week to elaborate on the allowances and pay structure system to which the mission chief referred, IMF resident representative for Jamaica, Dr Constant Lonkeng Ngouana, told the Financial Gleaner that the review conducted by the Jamaican Government was a structural benchmark under the standby agreement.

That review provided a detailed database of all allowances paid across the 10 employee groups of central government, said Lonkeng.

The review found, for instance, that there are at least 174 types of allowances, accounting for about one-third of the public-sector wage bill, equivalent to three per cent of GDP or about US$$420.9 million. That translates to $55.2 billion in Jamaican currency. The estimate is based on World Bank data, which indicates that Jamaica's GDP in 2016 was US$14.03 billion.

Wage rigidity

Lonkeng said allowances are uneven across groups and the amount per person can vary significantly within each group, making the system complex and generating inequities and distortions.

"They exacerbate wage rigidity and have tended to complicate public-sector wage negotiations in the past, given that some of them are negotiated separately in a decentralised bargaining process," said the IMF representative.

Wage rigidity refers to the general difficulty employers experience in trying to reduce wages. Companies often find it difficult to reduce the wages of their employees because of labour agreement, concerns about lost productivity or other reasons; and they sometimes elect to conduct layoffs rather than adjust wages when facing losses or lower profits.

Asked what level of workers in the public sector enjoy those 'extensive allowances' and for what specifically, Lonkeng said: "The review, to our knowledge, did not focus on specific government employees nor make a judgement as to which allowance is warranted."

Revamping compensation

Although the overhaul of the pay structure is not expected to apply to the ongoing round of wage negotiations, given the scope and breadth of the reforms, the related technical work should start soon, for completion in time to inform the next round of public-sector wage negotiations, he said.

Asked whether the IMF has a target as to where it would like to see the number of allowances and the percentage of the wage bill with respect to those allowances reduced to, Lonkeng said the IMF-supported programme does not have such targets.

"The rethinking of the allowances system should be part of the broader revamping of the compensation framework for government employees in a consultative process, ahead of the next round of wage negotiations," he said.

"This should be done with a view to increasing public-sector productivity and efficiency, including by scaling back the roles and responsibilities as well as the size of the public sector, and reducing the wage bill in order to release resources for much-needed growth-enhancing spending."

According to the latest policy paper, a wage bill equivalent to nine per cent of GDP is legislated for fiscal year 2018-19.