TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES 1997 Edition ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: - to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; - to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996) and the Republic of Korea (12th December 1996). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). PubliC en frangais sous le titre : EVOLUTION DES REMUNERATIONS DU SECTEUR PUBLIC DANS LES PAYS DE L’OCDE Edition 1997 0 OECD 1997 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre fraqais d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, Tel. (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: http://www.copyright.com/. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue AndrC-Pascal, 75775 Paris Cedex 16, France. FOREWORD The reform in public sector pay determination systems has now been achieved in some OECD countries. Others are moving toward reform using more progressive and pragmatic methods. Whatever the pace of reform and instruments of change, the transformation of public service management requires that all countries take steps to make their public sector labour markets more flexible. The 1997 edition of Trends in public Sector fay in OECD Countries, an annual report prepared by the Public Management Committee, presents the main aggre- gates and indicators related to public sector pay and provides a detailed description of pay determination systems in seventeen OECD countries. It identifies a range of criteria used to compare and classify pay systems and, on the basis on empirical results, suggests factors that explain changes in the pay bill. This report was prepared by Nicole Lanfranchi of the Public Management Service. Hdi3ne Perrin contributed to the statistical analysis. Technical Assistance was provided by Katherine Poinsard. The Secretariat wishes to thank the national authorities who contributed to the study. However, any errors or omissions of fact or interpretation are the responsibil- ity of the Secretariat. Following agreement by the Public Management Committee to its publication, the report is published on the responsibility of the Secretary-General of the OECD. TABLE OF CONTENTS Summary ......................................................... 7 Introduction: a changing situation ....................................... 11 Part I PRESENTATION OF THE STATISTICAL DATA Monitoring government outlays ........................................ i3 Government outlays in the System of National Accounts (SNA) .............. 13 Trends in various governments' outlays ................................ 13 Reducing personnel costs: what is at stake? ............................. 15 Pay trends ........................................................ 24 Part 2 DESCRIPTION OF PAY DETERMINATION SYSTEMS Australia .......................................................... 35 Austria ........................................................... 39 Canada .......................................................... 42 Denmark ......................................................... 45 Finland .......................................................... 48 France ........................................................... 51 Germany ......................................................... 55 Ireland ........................................................... 58 Italy ............................................................. 63 Netherlands ....................................................... 66 New Zealand ...................................................... 69 Spain ............................................................ 72 Sweden .......................................................... 76 Switzerland ....................................................... 80 Turkey ........................................................... 82 United Kingdom ................................................... 83 United States ...................................................... 87 a TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES Part 3 COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS A comparative overview of pay determination systems ...................... 90 Design of a decentralisation index for pay determination systems .............. 94 Classification of pay determination systems ............................... 102 Empirical results ................................................... 102 Conclusion ........................................................ 106 Annex 1 . Data collection outcome ..................................... 109 Annex 2 . Pay policy in the Canadian public service since 1990 ............... 127 Introduction ..................................................... 127 Reforming the job classification system in the federal public service .......... 128 Reduction in federal public service staff expenditure since the early 1990s ..... 132 Appendix I . New Occupational Group Structure ............................ 141 Appendix 2 . The Exclass Project ........................................ 144 Appendix 3 . Factors and Elements ...................................... 145 Appendix 4 . Federal Public Sector Employment - December 1994 .............. 146 Appendix 5 . Pay Parity Law Between Men and Women ....................... 147 Appendix 6. Downsizing in Public Service and Early Departure Incentives ........ 148 \ SUMMARY The need to reform public sector pay determination has been clearly expressed in countries such as Australia, Finland, New Zealand, Sweden and the United Kingdom. Reform has recently been completed or is currently being implemented in these countries. Many OECD countries facing problems of limit- ing public spending and managing public employment are thus naturally giving the various stages of the reform process and the results obtained their constant attention. Pay determination systems are not permanent but change over time in all countries, including those where major reform has been undertaken. It is therefore important to identify factors that lead countries to change their systems. Such factors include the economic context, budgetary constraints, the need to make public labour markets more flexible, concerns with social equity, and struc- tural change in the public labour force. Part 1 of this report considers changes in the main aggregates related to public sector pay. Growth in compensation costs has been slowed in most OECD countries and these costs often account for a smaller share of government final consumption expenditure and of GDP. This fall in the relative share of compensa- tion costs may result from structural change in public employment owing to transfer of activities to the private sector or changes in the status of what were previously public sector bodies (Finland, France, Sweden). It may also derive from reforms intended to improve public service performance and efficiency (Australia, New Zealand, United Kingdom), which also are associated with struc- tural changes in the public workforce. The policy of wage restraint applied since the beginning of the 1990s in some OECD countries (Australia, Canada) has also borne fruit. Trends in average pay have been scarcely higher than the low infla- tion experienced in most Member countries. In fact, the small margin available for increases in nominal wages suggest that inadequate allowance may be made for national agreement and local employment market reactions, or for special condi- tions prevailing in certain occupations. Pay agreements are seen increasingly to cover periods of several years (Finland, France, Netherlands, Sweden). Content of agreements is changing as negotiations shift towards subjects such as working hours, job classifications, training etc. (France, Netherlands). 7 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES Part 2 of the report is devoted to a description of pay determination systems in the