Sat | Oct 21, 2017

Editorial: Wage agreement partly good news

Published:Friday | August 14, 2015 | 12:00 AM

IT IS only partly good news that several public-sector unions, representing more than 40 per cent of the Government's employees, have accepted the administration's seven per cent wage increase on basic pay, spread over two years. This is two per cent better than the Government had initially proposed, but well below the 30 per cent that most unions demanded.

On the positive side, there will now be pressure on other groups, such as teachers, the police, doctors and nurses, to conclude wage agreements on the same, or similar, terms, lest they be perceived as uncaring and callous spoilers, willing to undermine the country's economic reform programme. While this would be the intent of the holdouts, it would not be an irrelevant or unworthy idea as an outcome.

There are good reasons why, for four years, the basic wages of public-sector workers were frozen and why the Government can ill afford to pay more than what is on offer, and the basic one is the country's poor finances.

Although things have improved substantially over the last three years, Jamaica still has public debt that is a bit over one and a quarter times the annual value of its goods and services. And 10 percentage points of the reduction came only in the past fortnight with the Government's discounted buy-back of US$3.2 billion it owed to Venezuela.

 

NOT OUT OF THE WOODS

 

Yet, the country is not out of the woods. It still has difficult things to do under its reform agreement with the International Monetary Fund, to put the economy in a position to ensure reasonable and reasonably sustained growth.

Among these obligations is achieving a primary surplus of 7.5 per cent of gross domestic product (GDP). These undertakings are harder to accomplish when public-sector wages are above 10 per cent of GDP - rather than the targeted nine per cent - and account for more than a quarter of projected government expenditure and more than 40 per cent of the taxes expected to be collected.

The approach to fixing these unsustainable ratios has, at best, been to fudge. Put coarsely, the Government and union bosses have contrived to keep public-sector workers in collective poverty with wage freezes, on the assumption of saving jobs.

 

CUTTING JOBS TO BOOST CREATIVITY

 

By most estimates, some 15,000 jobs would have to be cut from the public sector if the remaining employees were to receive wages closer to what their unions demand, and for compensation for critical posts to be competitive with the private sector. It should be done. Handled carefully, it will deliver much value.

First, maintaining an overstaffed, poorly paid public sector undermines productivity and efficiency, as well as saps creativity. People in sinecures are less likely to be driven to enterprise. So, freed of the embraces of the State, many furloughed employees will do things that add energy to the economy and help to stimulate jobs.

In any event, no employee in any enterprise is guaranteed a job, especially if the firm is not profitable and that job does not add value to the firm. The same thing is applicable to the public sector, and especially in an economy where labour productivity is declining by one per cent a year, and perhaps faster in the public sector.