Sun | Aug 20, 2017

Editorial: Public-sector unions must be sensible

Published:Sunday | May 17, 2015 | 5:00 AM

It is not irrational of public-sector workers to wish that they earned substantially more and to ask the Government for pay hikes of up to 30 per cent. Every employee would like more. Government employees also have, on the face of it, a credible argument of being on a wage freeze since 2012.

It would, however, be unreasonable of public workers to insist on their demand or to be disruptive about it. It would be equally irresponsible of the Government to acquiesce - at least, in the absence of significant concessions by unions on the size of the public sector.

Perchance we are deemed provocative, the current public-sector wage negotiations have to be placed in their correct context. Three years ago, when unions agreed to a wage freeze, Jamaica faced a dire fiscal crisis. The Government's debt, one of the world's worst, was bearing down on 150 per cent of gross domestic product (GDP). Not only did Jamaica have few willing lenders, but it faced the real risk of credit default. Irresponsible government borrowing was a major contributor to four decades of relative economic stagnation.

At the time, the wage bill, having grown 87 per cent in five years, accounted for 43 per cent of government revenue. After debt-servicing costs were added to wages, the Government still had to borrow to the tune of 20 per cent of all the money it 'earned' so as to meet its obligations. The wage freeze to which public-sector workers agreed was the alternative to a cut of 15,000 jobs, which, for the administration, was the politically easier option.

 

projected expenditure

 

The imposed discipline of an agreement with the International Monetary Fund has helped drag Jamaica from the edge of a fiscal precipice.

But the country cannot presume itself to be safe. For even with Government's current offer of five per cent over two years, the proposed wage bill of J$165.2 billion - not including J$5 billion for pensions - for this current fiscal year is approximately 26 per cent of projected expenditure. At another measure, it is 43 per cent of all the taxes the administration expects to collect. Wages and debt-servicing, taken together, will consume 88 per cent of total government earnings from taxes and non-borrowing revenue and will account for 61 per cent of budgeted expenditure.

Put another way, after paying wages and servicing debt out of a budget of J$641.6 billion, the Government would have around J$250 billion to spend on everything else - fixing hospitals and schools, repairing roads and drains, or purchasing equipment for the police, and so on. Or, it could ignore these things and pay public-sector workers what their unions demand.

There are also two other considerations, the first of which is for the consideration of unions. Jobs don't guarantee workers the wages they hope for. That usually depends on the performance/profitability of the firm that hires them and its ability to pay. The Government's ability to pay is seriously constrained.

The other matter is that the Government has dithered on public-sector reform. It is time to get serious, including chopping staff and paying decently those who remain, on the basis of creating an efficient and entrepreneurial public sector.