Federal Public Sector Employment - December 1994

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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 aggregates 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 responsibility 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 limiting 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 structural 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 compensation 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 structural 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 inflation 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 conditions 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 different countries. After presenting the institutional framework of pay determination, emphasis is placed on the role of central government in setting the size of the pay bill and the various constraints it can place on agencies and departments. In particular, it is seen that the pace of reform has differed from country to country as has the means used to make the pay determination system more flexible and decentralised. In some, major reforms over several years have now been completed (Australia, New Zealand, United Kingdom) while others have proceeded experimentally (United States) and in successive phases (France) to confirm whether or not the instruments used are the most appropriate for the national situation. More recently, other countries (Denmark, Germany) have modified their pay system in order to introduce the notions of performance and merit. It is important to understand the range of situations not only among countries, but also within countries. The problem arises in particular in federal countries where institutional rules differ from one state to another (Australia, Canada, Switzerland, United States); it also arises when employment relations are structured by occupation (United Kingdom) or by functional sub-sector (Italy, Netherlands). To give an overall picture of public sector pay determination and reflect the workings of the overall public labour market, the report endeavours to reflect these differences in the description of national systems and takes them into account in the econometric analysis. On the basis of case studies, a comparative analysis has been undertaken and is the subject of Part 3 of the report. The aim of this work is to illustrate the wide variety of pay determination systems to be found, if we look at differences in institutions, collective bargaining arrangements, job classification systems and the structure of the public sector in the countries concerned. The division of systems into two major groups (centralised or decentralised) is not satisfactory and the analysis undertaken has led to suggesting a broader typology of countries. Com- parisons have been made on the basis of a decentralisation index of pay determination systems, calculated for each of the countries. Construction of such an index required an approach flexible enough to reflect both changes over time in national systems and the various systems to be found in a given country. The results show that countries are not all using the same instruments to make their systems more flexible and that in countries which have introduced a decentralised pay system, the central government retains to a varying degree the ability to intervene on pay within agencies or departments. Finally, the aim was to find out whether highly decentralised pay determination systems led to a reduction in the wage bill. The results show clearly that since the beginning of the 1990s the countries that have reformed their pay 18 systems are the ones most successful in holding down their wage bills (Australia, SUMMARY

Canada, Finland, Netherlands, United-Kingdom). However, certain countries with relatively centralised systems (United States) have also succeeded in controlling their wage bills. Based on the empirical results, an econometric analysis was carried out to test the validity of the hypothesis that the pay bill varies in line with the trend of public employment and the degree of decentralisation of the pay system, and to estimate the respective weighting of the two variables. Empirical observation suggests that the trend of the pay bill does depend on these two variables and that reform of the pay system has had slightly more weight than reduction in staff numbers. It is clear that changes in the pay bill cannot be explained solely by the two variables “reform of the pay system” and “reduction in public employment”. Other variables have an impact, such as employment status, trade union power or pay differentials between public and private sector. This type of analysis also gives an opportunity to check whether a fall in employment means that the productivity and efficiency of the public sector have increased. Indeed this is what it is suggested by any fall in employment when the level of output is maintained.

INTRODUCTION: A CHANGING SITUATION

Public sector pay determination systems in all the OECD countries are these days operating in a changing environment, and have been doing so since the late 1980s or early 1990s. One characteristic of this new environment, common to most OECD countries, is the limitation on public spending. with integration into the European Union in view, the EU countries are engaged in meeting the standards of convergence set by the Maastricht Treaty. They are not, however, the only ones aiming to achieve more efficient use of public funds and better public service performance. Several non-European Member countries have embarked on similar policies, and have sometimes been pioneers in the matter. The continuing high rate of unemployment in some Member countries entails spending on social transfers which cannot easily be reduced. The decline in government receipts due, among other factors, to the fall in tax revenue, is inducing the governments of these countries to develop new public management methods capa- ble of bringing order into the national finances while there is still time. In some ways, policies for curbing public sector spending may seem out of place in a period of economic doldrums and hardly appropriate for restarting the national economy. Yet a growing number of countries have uncoupled their job creation and increased house- hold spending policies from their public sector austerity measures. These, they feel, serve to boost efficiency. They should apply the same discipline as that operating in the private sector and thereby contribute to national economic recovery. One key element of this changing situation, insofar as government wage policies are concerned, is the low level of inflation recorded in recent times in many countries. This new factor has made it possible to break with old collective wage bargaining habits and has given the various negotiating partners the opportunity to reason more in terms of strategy. More and more, the point at issue has been the creation of a link between pay and performance or negotiations on conditions rather than wage hike demands for greater purchasing power. The productivity requirements gradually being extended to public services are also helping to give rise to new staff management techniques, new pay schemes and new negotiating fora. In a growing number of countries, staff representatives are acting as partners, while bargaining is becoming a management tool and an instrument for shaping the future. 4

Part 1 PRESENTATION OF THE STATISTICAL DATA

MONITORING GOVERNMENT OUTLAYS Government outlays in the System of National Accounts (SNA)

The volume of government outlays, which is an independent variable in national accounts, depends on government goals and is an instrument of economic policy. It may be seen from Figure la that, while the modal (most fre- quently occurring) ratio of government outlays to GDP lies between 56 and 65 per cent, over half the countries concerned have ratios which are lower. On the other hand, if we look at the share of final consumption in government outlays, we see that it is considerably more concentrated (in over half the countries) in the 35-45 per cent range (see Figure 16 for a breakdown of final consumption expenditure). In other words, government final consumption expenditure and outlays are proportionately equivalent in the majority of countries. Compensation costs make up at least half of final consumption expenditure in nearly all countries, and three-quarters of it in one country out of two. Compensation costs, owing to their size in relation to final consumption expenditure, attract special attention from governments when they are preparing measures for curbing government outlays.

Trends in various governments’ outlays

Table 1 gives an overview both of the structure of government outlays by function and of recent trends. The broad tendencies may be described as follows: - In all countries, except Iceland, the Netherlands and Spain, the percentage ratio of total government outlays to GDP rose from 1989 to 1994. The sharp increase in this ratio in Finland and Sweden may be explained by an economic downturn in the early 1990s and a resulting upsurge in transfer spending. The ratio remained steady in Spain and fell by almost two points in Iceland and the Netherlands. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

+ Figure I Q. Compensation costs and public outlays: a national accounts overview

GROSS DOMESTIC PRODUCT 1 I PUBLIC OUTLAYS

- Slightly higher than 70% of the GDP in I country - Between 56 % and 65% of the GDP in 7 countries - Between 46 % and 55% of the GDP in 5 countries - Between 35 % and 45% of the GDP in 6 countries - Slightly lower than 35% of the GDP in I country

FINAL CONSUMPTION in general government - Between 46% and 50% of public outlays in 4 countries - Between 4 I% and 45% of public outlays in I country - Between 36% and 40% of public outlays in 10 countries - Between 3 I % and 35% of public outlays in 2 countries - Between 25% and 30% of public outlays in 3 countries

t COMPENSATION COSTS

- Between 7 I% and 80% of final consumption in 7 countries - Between 6 I% and 70% of final consumption in 4 countries - Between 5 I% and 60% of final consumption in 2 countries - Between 40% and 50% of final consumption in I country

or PAY BILL'

- Between 50% and 55% of final consumption in 3 countries

I. When compensation costs are not available, the figures refer to the pay bill. Reference year: I994 or last year available. Source: NationalAccounts, OECD, except for compensation costs and the pay bill: national sources.

- The share of final consumption expenditure in GDP also rose in most countries, with the exception of Denmark, Germany, Greece, the Netherlands and the United States. - The share of compensation costs (or of the pay bill, where compensation cost figures were unavailable) in GDP followed rather more varied trends in PRESENTATION OF THE STATISTICAL DATA

+ Figure I b. General Government final consumption components

CONSUMPTION

Intermediate 1- AddedValue consumption I

Compensation of employees

Indirect taxes

Consumption of fixed capital

Less: sales \' I Less: own account fixed capital formation

Source: System of National Accounts.

the different countries. It rose in Austria, Canada, Iceland, Ireland, Italy, Portugal, Spain, Switzerland, and the United Kingdom, remained practi- cally steady in Germany and the United States and fell in Australia, Denmark, Finland, France, the Netherlands and Sweden. Within this latter group of countries (those which were able to reduce the ratio of wage costs to GDP), Denmark and the Netherlands managed to curb the proportion of both compensation costs and government final consumption in relation to GDP, whereas in Australia, Finland, France and Sweden final consumption continued to grow. That is to say that these countries were unable to restrain certain non-wage expenditure items entering into government final consumption. Germany and the United States, on the contrary, held down their final consumption expenditure, although their compensation costs (pay bill in the United States) rose very slightly.

Reducing personnel costs: what is at stake?

Averaged over the full period ( 1985 to 1994), the proportion of compensation costs (Table 2) or the pay bill (Table 26) as percentage of final consumption showed little variation. The ratio showed a tendency to rise from 1985 to 1990 in 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 1. Changes in government spending by function as a percentage of GDP

of which current spending as a % of GDP Total government outlays of which total Social security as a % Final consumption compensation and others of GDP‘ expenditure] costs2 transfers‘

1989 1994 1989 1994 1989 1994 1989 1994

Australia 35.4 39.6a 16.6 18.2” 9.5*, 8.5’ 10.2 13.4” Austria 48.3 50.9 18.1 18.8 12.3 12.7 20.2 22.2 Belgium 55.7 57.3 14.7 15.0 .. .. 25.4 26.8 Canada 44.8 48.9 19.2 20.2 10.4’ 11.4’ 12.3 15.6 Denmark 60.0 64.0 25.6 25.5 18.9 18.1 20.7 24.6 Finland 43.1 60.7 19.7 22.4 I 7.2c 17.0 16.0 27.1 France 50.2 56.3 18.0 19.6 13.1 12.8 23.2 26.0 Germany 45.8 48.9 18.8 17.7 10.0 10. 1” 18.4 22.8 Greece 46.1 5 1 .2” 20.7 19.1” .. .. 15.4 15.9” Iceland 42.7 40.9 19.6 20.6 8.0 8.3” 6.8 7.8 Ireland 40.9 44.0” 14.5 1 6.2a 11.9 12.8 16.2 1 7.7“ Italy 53.6 55.5 16.6 17.1 11.8 12.5a 18.8 20.5 lapan 31.5 34.9a 9.2 9.6” .. .. 11.6 1 2.8a Netherlands 58.0 56.5 14.9 14.2 9.0 8.6 29.7 30.2 New Zealand ...... 9.9 .. .. Norway 54.7 56.5b 21.1 21.5b .. .. 20.0 21.7b Portugal 40.5 .. 15.1 .. 11.3 13.7 11.8 .. Spain 42.6 42.6 15.2 16.9 10.7 11.7 15.6 18.7 Sweden 59.8 70.1a 26.2 28.0” 20.0 18.1 21.2 27.2” Switzerland 30.2 36.9 13.1 14.1 10.3c 11.2 14.4 19.0 United Kingdom 41.0 45.3 19.8 21.6 11.4 11.7 12.7 16.2 United States 35.9 37.6” 17.6 17.1” 8.0’ 8.1’ 11.0 1 3.5”

Sources: I. National Accounts, OECD. 2. National sources. a) 1993. b) 1991. c) 1990. * Pay bill.

some of the countries, then it slackened after 1990 as only five countries have an increase in the share of compensation costs in the final consumption expenditure over the recent period. In the United States the share of the pay bill grew steadily from 1985 to 1994. The increasing share of the pay bill in final consumption is most probably due to the relative decrease in final consumption expenditure, already shown in Table 1. In a certain number of countries, compensation costs declined, largely owing to changes in the status of entities that had formerly depended on the public service. This was the case in Denmark, France, Finland, Sweden and the United Kingdom, among others. The new forms of goods and K services provisions traditionally provided by the public sector led to a decrease PRESENTATION OF THE STATISTICAL DATA in public employment, due to the transfer of employees to the private sector. However, the primary objective of the governments, in particular in France, was not to reduce public employment, and consequently the volume of compensation costs, but to improve the management and the performance of those bodies which had been transferred to the open market. It now seems accepted within OECD countries that a cut in the pay bill is not meant to have an immediate

Table 2. Compensation costs as a share of general government final consumption expenditure

Compensation costs as a % of final consumption

1985 I990 1994

Austria 67.3 68.3 67.6 Denmark 75.1 73.5 70.9 Finland .. 76.8 75.8 France 73.7 73.3 65.8 Germany 53.0 53.2 55.P Iceland 40.3 40.0a Ireland 80.4 80.9a Italy 70.9 72.4 7 1 .Oa Netherlands 61.4 59.1 60.4 Portugal .. 74.5b Spain 71.8 71.3 69.4 Sweden 74.0 76.8 66.1 Switzerland 76.6 79.5 United Kingdom 57.6 56.7 54.4

Sources: - Compensation costs: National sources. - Final consumption: National Accounts, OECD. a) 1993. b) 1989.

Table 2bis Pay bill as a share of general government final consumption expenditure

Pay bill as a % of final consumption

1985 1990 I994

Australia 53 7 47 9 Canada 54 4 53 3 Finland 64 0 53 9 52 4 United States 44 2 46 0 50 4

Sources - Pay bill National sources - Final consumption National Accounts, OECD 171 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

mechanical (resulting from downsizing) and directly measurable effect on government finances, but its purpose is rather to influence the behaviour of the actors in the economy, in part by the effect on national and international markets of the message it sends. Those first affected by policies for curbing public spending are central and federal governments. Sub-national levels, also constrained by the need to liimit spending, adopt the same sorts of measures as central or federal government but the scale of implementation is generally smaller. The labour shedding announced in France concerns the State civil service rather than the whole public sector as defined in the national accounts. The federal systems (Australia, Canada, United States) have applied their staff and budget trimming policies to federal government services. It is necessary to recognise that the savings are small in comparison to overall government spending. Perhaps the basic issue is nudging the public sector towards a new style of management grounded not only in cost- cutting but also in performance, efficiency and productivity and making it contribute to national economic growth on the same footing as industry and otlher players in the private sector. Compensation costs and the pay bill tend to decline (see Tables 3 and 361in most OECD countries. Nevertheless, this trend does not only reflect the impacts of governments public pay policies. The issue of the transfer of activities away from the public sector (taken in the strict sense), as was the case for instance in Denmark in 1991, Finland from 1992, France in 1991, Sweden from 1992, has already been mentioned above. It should be borne in mind when examining changes in the pay bill and compensation costs. The case of the United Kingdlom differs because the decrease in the pay bill and public employment since the 1980s was a component of the government policy, aiming at improving public service efficiency. The government-advocated civil service wage policy first came into effect in 1993, while devolution of staff management and pay setting was completed in April 1996. It will be interesting to observe the results achieved in all these countries, a distinction being made between effects linked to the larage- scale reductions in staff numbers attributable to changes in the status of public institutions and those linked to new pay policies. Trends by level of government (Tables 3 and 36) would seem to indicate tlhat expenditure on pay has been more successfully controlled at the federal level (Australia, Germany, United States). In Canada, a transfer of school boards from provincial to local level was responsible for an interruption of the trend in 1992. In non-federal countries, trends were roughly similar at central and local levels. The breakdown by levels of government does not, however, always give the best reflection of the institutional framework of pay determination systems. This is the case in the Netherlands, where only the trends by functional sub-sector are P relevant (see Table 4). Obviously either a complex breakdown of activities by PRESENTA TlON OF THE STATISTICAL DATA

Table 3. Annual changes in compensation costs by level of government In percentage

1988 1989 1990 1991 1992 1993 1994 1995

Austria Federal government 2.3 4.4 5.7 7.2 6.6 6.6 4.3 .. Lander 2.1 5.2 6.2 9.8 8.7 8.1 5.7 .. Municipalities 2.5 5.4 8.0 9.2 8.9 7.1 5.9 .. Total 2.3 4.9 6.4 8.5 7.8 7.2 5.1 .. Denmark Central administration ...... -0.7 1.8 1.2 1.8 .. Local government ...... 2.4 3.9 4.9 4.3 .. Total 7.0 2.3 2.6 1.5 3.3 3.8 3.6 .. Finland Cent ra 1 govern men t 10.8 6.2 -22.6 8.5 -0.5 -6.7 -2.3 -2.9 Local government ...... 8.5 0.0 -6.2 3.3 4.8 Total' ...... 8.5 -0.1 -6.3 1.7 2.7 France Cent ra I govern men t 3.1 3.3 7.0 -10.4 3.6 6.4 2.8 4.3 Local government 5.8 4.2 5.3 7.0 7.0 5.1 4.5 5.9 National health service 3.5 7.9 6.1 5. I 6.8 6.8 4.4 6.6 Total2 3.8 4.3 6.5 -3.9 5.0 6.1 3.5 5.2 Germany3 Fede ra I govern men t 2.3 3.4 4.5 2.2 5.4 0.6 .. .. Lander 2.5 2.1 5.7 6.5 8.3 5.2 .. .. Municipalities 2.5 3.3 7.5 10.0 12.2 2.0 .. .. Total 2.6 2.7 6.0 7.1 9.5 3.6 .. .. Iceland Total .. .. 13.8 15.4 2.7 1.6 .. .. I relan d Central administration -0.8 4.6 9.4 7.2 11.7 8.4 6.5 5.5 Local authorities .. 1.1 3.4 7.1 2.8 5.2 2.8 3.9 Total .. 4.2 8.7 7.2 10.7 8.0 6.1 5.3 Italy Central administration 12.5 6.5 20.5 8.6 4.7 2.9 .. .. Regional government 9.0 4.9 12.3 18.4 14.6 2.9 .. .. Local government 20.3 17.5 13.0 -4.3 -1 1.9 2.9 .. .. Total 12.7 7.7 17.5 8.8 4.8 2.9 .. .. Luxembourg Central level .. 8.5 5.4 15.7 8.4 -4.4 .. .. Netherlands4 Central Government ...... 4.3 4.9 2.0 -0.9 2.8 Regional Government ...... -3.2 4.2 0.4 5.9 2.9 Local Government ...... 3.7 -1.3 1.5 -3.6 4.1 Total ...... 3.8 3.5 1.8 -1.2 3.1 New Zealand Cent ra I Govern men t ...... 2.6 2.4 0.8 Local government ...... -4.7 6.8 .. Total ...... 1.9 2.7 19 I TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 3. Annual changes in compensation costs by level of government (cont.) In percentage

1988 1989 1990 1991 1992 1993 1994 1995

Portugal Central administration .. 35.7 22.3 27.0 16.9 7.3 4.0 Regional autonomous administration ...... 6.2 Municipalities .. 34.7 23.4 23.6 13.8 5.8 Total5 .. 35.6 22.4 26.7 25.2 7.1 3.9

Spain Cent ra I administration 9.2 10.8 13.8 10.8 12.1 4.3 1.9 .. Autonomous corn m un i t ies 10.2 17.7 18.4 15.2 13.3 7.2 3.7 .. Local administration 13.2 14.8 16.6 14.2 13.2 3.0 -1.3 .. Social security 17.7 18.2 16.4 16.1 20.2 -0.5 -1 .o .. Total 11.9 14.5 15.8 13.5 14.5 3.5 1.1 ..

Sweden Central Government 2.9 12.1 16.6 3.3 -3.8 -9.7 -17.3 11.3 Regional administration 7.0 10.4 14.7 3.8 -1 2.3 -4.8 0.6 -10.0 Local government 9.1 10.8 16.5 6.9 8.6 -2.0 2.2 4.5 Total 6.7 11.1 16.1 5.0 -0.4 -4.7 -3.2 2.3

Switzerland Federal administration .. .. 15.3 7.9 7.6 1.3 0.2 0.1 Total ...... 10.3 5.6 3.3 1.4 ..

United Kingdom Central Government6 7.6 9.2 10.0 10.2 9.9 5.4 0.5 -2.3 Local authorities 9.1 4.1 7.5 7.8 7.5 -2.6 1.5 4.3 Social security 10.4 7.8 12.8 11.6 9.0 4.1 5.9 .. Total 8.3 6.7 8.8 9.1 8.7 1.7 1 .o 0.6

United States Federal government 8.4 5.6 6.0 8.5 5.2 5.3 -1.2 2.8

1. Since 1990, excluding State enterprises. 2. Since 1991, excluding post and telecommunications 3. Without new Lander, excluding railways. 4. In 1994 there was a reshuffle of the sub-sectors. 5. Including Azores and Madeira. 6. Including NHS trusts.

functional sub-sector or structural changes can lead to results misinterpretations (e.g. in Sweden and Finland). Given this warning, one can see that in New Zealand, Sweden, Switzerland, the United Kingdom and the United States, the defence sector was the one where the drop in compensation costs was the most marked. In some countries (Iceland, Italy, Sweden, the United Kingdom), the education PRESENTATION OF THE STATISTICAL DATA

Table 3bis. Annual changes in pay bill by level of government In per cent

1988 1989 1990 1991 1992 1993 1994 1995

Australia Commonwealth ...... 4.9 3.2 1.7 -10.5 6.3 State ...... 6.6 3.9 2.0 -4.2 4.6 Local ...... 4.4 5.0 5.0 -3.3 5.1 Total ...... 6.1 3.9 2.2 -5.1 4.9 Austria Federal government 1.5 4.2 5.7 6.6 6.1 5.9 4.3 .. Lander 1 .o 4.6 6.5 10.1 9.1 8.1 6.0 .. Municipalities 2.2 5.4 8.0 9.4 9.2 7.4 6.2 .. Total 1.5 4.6 6.5 8.2 7.7 6.9 5.3 .. Canada Federal administration .. 10.6 8.0 2.9 3.9 -1.3 -0.9 Provincial and territorial administration' .. .. 9.6 7.1 -29.2 0.9 -0.9 .. Local administration' .. .. 10.0 7.3 147.2 2.3 0.4 .. Total .. 8.2 9.3 6.3 7.6 1.0 -0.4 .. Denmark Central administration 6.6 1.5 -0.7 -0.7 1.8 1.2 1.8 .. Local government 6.9 2.5 4.6 2.4 3.9 4.9 4.3 .. Total 6.8 2.2 2.9 I .5 3.3 3.8 3.6 .. Finland Central government2 11.9 5.5 -20.7 6.6 -0.6 -4.3 -2.3 -1.0 Local government 13.0 9.0 2.8 8.6 -0.4 -6.7 1.9 4.6 Total2 12.6 7.7 -5.8 8.0 -0.4 -5.9 0.6 2.9 France Central government3 3.4 4.1 7.2 -1 1.3 3.7 6.1 2.1 4.5 Local government 3.7 3.8 5.8 7.0 7.1 5.2 4.6 5.3 National health services 4.3 8.2 7.4 5.2 7.7 6.4 4.4 5.0 Total3 3.6 4.8 6.9 -3.7 5.4 5.9 3.3 4.8 German9 Federal government 2.0 2.8 4.9 3.5 3.3 0.1 .. .. Lander 2.4 2.1 5.5 7.0 6.9 3.8 .. .. Municipalities 2.3 3.3 7.2 10.0 6.9 3.8 .. .. Total 2.4 2.6 6.0 7.6 6.6 3.2 .. .. Iceland Total .. .. 13.4 14.7 2.5 1.5 Italy Central administration 12.6 5.2 21.6 8.1 2.9 2.3 .. .. Regional government 9.0 3.6 13.3 17.8 12.7 2.3 .. .. Loca 1 government 20.3 16.1 14.0 -4.7 -13.4 2.3 .. .. Total 12.8 6.4 18.6 8.3 3.0 2.3 .. .. Luxembourg Central level .. 8.4 5.7 15.6 8.0 -4.3 .. .. 71 I TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 3bis. Annual changes in pay bill by level of government (cont.) In per cent

1988 1989 1990 1991 1992 1993 1994 1995

Mexico Central Government .. .. , , -38.7 22.6 .. Total ...... -38.4 23.1 ..

Netherlands5 Central Government .. .. 2.9 2.8 1.9 -0.4 0.1 Regional Government .. .. -3.9 4.2 -0.2 6.2 2.3 Local Government .. .. 3.0 -1.4 0.7 -3.7 4.1 Total .. .. 2.5 1.9 1.5 -0.8 1.1

New Zealand Central Government ...... 2.5 1.6 1.3 Local government ...... -3.7 5.4 .. Total ...... 1.9 1.9 ..

Portugal Central administration ...... 3.2 4.0 .. Total 25.8 25.7 23.2 20.1 18.3 3.8 3.5 ..

Spain Central administration 11.0 12.4 12.6 10.1 5.4 3.7 .. .. Autonomous communities 10.0 18.1 18.0 15.8 13.0 6.5 .. .. Local administration 13.7 15.4 18.8 14.2 13.2 3.4 .. .. Social security 19.3 17.4 19.5 14.9 8.1 7.6 .. .. Total 13.1 15.3 16.5 13.2 9.1 5.3 .. ..

Sweden Central Govern men t 3.0 11.7 15.6 3.8 -4.6 -9.2 -16.2 10.5 Regional administration 7.1 9.6 14.4 3.4 -10.2 -2.6 -0.8 -6.3 Local government 5.4 7.9 16.5 5.6 11.8 -0.4 4.1 5.4 Total 5.1 9.5 15.7 4.5 1.4 -3.3 -2.2 3.8

Switzerland Federal administration .. .. 8.4 10.6 8.6 4.8 -1.4 2.2 Total ...... 2.5 2.0 ..

Turkey Central 65.5 150.6 108.0 91.7 90.6 78.5 63.0 62.4

United States Federal government 5.3 4.5 5.8 5.7 4.8 4.7 2.0 1.8 State 7.0 7.9 8.7 5.2 3.4 4.2 5.0 4.3 Local government 7.6 8.0 8.4 5.9 4.9 4.2 4.4 4.6 Total 6.9 7.1 8.2 5.5 5.1 4.0 3.9 3.3

1. Since 1992, the school board is included in municipalities, previously it was included in Provinces. 2. Since 1990, excluding State enterprises. 3. Since 1991, excluding posts and telecommunications. 4. Excluding railways; without new Lander. LLL 5. In 1994 there was a reshuffle of the sub-sectors. PRESENTATION OF THE STATISTICAL DATA

Table 4. Annual changes in compensation costs by functional sub-sectors (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

Austria Health 2.0 5.5 9.0 7.4 11.0 8.2 .. Education 1.9 6.5 4.4 9.2 8.4 7.8 .. Police 0.5 4.3 6.7 8.7 6.7 7.4 .. Defence 1.6 1.3 1.8 9.8 1.5 3.4 4.3 .. Iceland Health .. .. 14.7 14.1 8.2 3.9 .. .. Education .. .. 13.3 18.3 5.0 0.1 .. .. Police .. .. 10.5 10.0 2.8 5.0 .. .. Ireland Health -2.1 5.6 13.6 13.4 10.8 12.2 5.0 6.6 Education 1.1 6.3 4.3 -0.3 18.9 8.7 8.5 4.5 Police -1.5 3.0 9.1 8.8 9.3 6.3 2.8 2.0 Defence2 4.0 3.3 20.4 4.5 1.7 2.9 5.7 3.5 Italy Health 2.7 3.8 14.0 20.1 8.3 2.9 .. .. Education 20.0 10.6 13.0 3.6 4.4 2.9 .. .. Police 12.7 5.0 18.0 20.5 14.9 2.9 .. .. Defence 12.1 5.5 17.5 21.7 4.8 2.9 .. .. Luxembourg Education .. 9.9 7.6 14.2 8.8 6.7 .. .. Defence .. 8.6 6.0 14.4 8.2 7.1 .. .. Netherlands3 Education 2.1 3.3 3.2 6.6 27.2 3.1 -1.2 0.7 Police -1.5 0.5 0.9 3.6 35.6 4.7 2.8 8.3 Defence 2.4 0.8 0.1 -1.9 37.1 -2.2 -3.9 11.6 Judiciary 2.1 4.0 8.2 5.7 24.3 11.5 7.9 8.4 Polders Boards 6.9 -0.2 3.5 7.2 -18.0 5.7 12.2 7.0 Ministries -0.4 2.5 1.3 1.5 -16.9 1.3 0.1 1.9 Municipalities -2.3 -1.1 1.1 3.7 0.6 1.5 -3.6 4.1 Provinces -1.3 3.1 -5.5 -1 1.1 3.6 -4.3 6.1 -6.6 lntercomrnunal associations 0.2 1.8 -1.8 0.0 1.5 4.4 3.2 8.5 New Zealand' Health ...... 0.1 2.5 3.4 Education ...... 5.6 2.6 0.4 Police ...... 12.3 10.4 -0.4 Defence ...... -5.5 0.0 -6.5 Social ...... -0.7 1.1 5.3 Port ug a 1 Health .. 12.7 31.4 26.9 19.3 ...... Education .. 24.6 14.3 35.3 17.6 ...... Defence .. 44.8 15.9 15.0 18.2 ...... Spain4 Health 10.0 19.9 14.8 17.1 20.2 -3.2 .. .. Education 0.3 28.4 17.0 16.9 21.7 31.7 .. .. Police 15.3 10.7 13.8 14.6 13.6 38.0 .. .. Defence 3.9 14.9 7.1 10.4 -6.9 37.2 .. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 4. Annual changes in compensation costs by functional sub-sectors (cont.) (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

Sweden Health5 7.4 10.3 15.6 3.2 -16.0 -4.4 .. .. Education6 8.4 5.9 17.8 4.5 1.2 -3.0 .. .. Police 7.0 6.5 26.5 8.1 3.0 4.3 0.0 .. Defence 1.4 4.7 16.3 5.0 0.0 6.7 -10.7 .. Public utilities7 2.5 7.6 12.0 -2.5 -1 2.7 -35.4 -74.1 .. University 6.7 4.9 17.3 10.0 3.5 10.6 -2.6 .. Judiciary 10.3 3.8 16.4 3.9 -3.0 4.1 1 .o .. United Kingdom Health8 10.4 1.0 9.4 8.2 12.5 7.0 3.0 .. Education 9.8 2.4 4.7 9.3 10.4 -7.7 0.9 .. Pol ice9 9.3 0.8 11.2 11.8 9.6 6.2 1.7 .. Defence9 4.4 6.5 8.7 11.2 4.9 3.9 -2.7 .. United States Defence 4.3 5.1 2.7 5.7 2. I 2.8 -4.3 1.0

1. Central government. 2. Excluding civil servants. 3. Changes in classification in 1992 and reorganisation of the sub-sectors in 1994. 4. Central administration and social security. 5. Regional administration. 6. Local administration. 7. The Post office status changed in 1992, and is now included in the private sector. 8. Including NHS Trusts. 9. Including civilians.

sector was more affected than others. This is probably due to the decline noted in several OECD countries in the number of teaching staff, no doubt owing to smaller classes, rather than any rollback in pay.

PAY TRENDS As was mentioned earlier, pay trends in most countries need be seen against a background of lower inflation. Negotiated wages evolve in close parallel with price trends (see Table 5). The growth in average earnings is almost invariably higher than that of negotiated wages (Denmark, France, Netherlands, United States Federal Administration). Average earnings are affected by elements other than increases in negotiated rates, such as seniority, promotion, allowances and changes in staff numbers. In the United States, in 1994, Federal employees received no increase to their basic pay, but did receive locality pay increases ranging from 3.09 to 6.52 per cent. In 1995, employees received a 2 per cent PRESENTATION OF THE STA TlSTlCAL DATA

Table 4bis. Annual changes in public sector pay bill by functional sub-sectors (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

Australia Health 10.3 7.1 6.7 5.3 -3.8 ...... Education 6.1 0.8 10.2 8.3 5.0 ...... Police .. .. 4.5 10.5 -4.5 ...... Social 21.5 25.6 19.7 ...... Canada Health .. .. 7.1 8.2 7.6 1.1 -0.9 .. Education .. .. 10.6 7.4 10.1 2.4 -0.1 .. Police .. .. 10.0 5.0 3.2 0.0 0.8 .. Search .. .. 5.6 6.2 5.0 -4.0 3.5 .. Social .. .. 9.3 10.9 15.6 3.2 0.9 .. Cu 1t u re .. .. 11.1 4.4 9.2 0.2 -1.2 .. Finland Health ...... -14.2 -4.3 -0.9 .. .. Education ...... 11.5 0.5 -3.8 .. .. Police ...... 3.2 0.1 -5.0 0.9 1.9 Defence ...... 14.9 0.1 -6.5 4.6 1.8 Iceland Health .. .. 14.3 13.5 8.0 3.8 .. .. Education .. .. 12.9 17.6 4.8 -0.1 .. .. Police .. .. 10.1 9.4 2.7 4.8 .. .. Luxembourg Education .. 9.7 7.7 14.2 8.5 6.6 .. .. Defence .. 9.2 5.6 14.7 8.1 7.0 .. .. Mexico Health ...... 22.9 19.6 .. Education ...... -67.3 22.8 .. Defence ...... 18.7 26.7 .. Agriculture ...... 7.4 4.3 ..

Netherlands I Education 4.2 4.5 2.5 5.3 27.2 3.0 -0.6 -1.7 Police 0.5 2.7 0.5 2.8 34.8 4.1 3.2 9.2 Defence -0.5 1.3 8.4 -1.9 24.6 -2.2 -3.6 2.4 judiciary 4.0 5.3 8.2 5.4 24.7 11.4 7.1 3.5 Polders Boards 9.9 1.7 3.3 6.4 -21.5 4.9 13.1 6.9 Ministries 2.2 4.5 0.9 0.8 -1 7.7 1.4 0.5 0.9 Municipalities 0.0 1.2 0.8 3.0 1.2 0.7 -3.7 4.1 Provinces 1.2 5.3 -5.6 -1 1.7 3.7 -4.2 5.6 -7.9 Intercommunal associations 2.7 3.8 -2.0 -0.7 1.3 0.5 3.9 8.3 New Zealand2 Health ...... 0.1 -0.7 3.8 Education ...... 4.2 2.5 0.1 Police ...... 14.9 11.0 0.1 Defence ...... -4.0 0.2 -3.8 Social ...... 0.7 1.3 5.7 25 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 4bis. Annual changes in public sector pay bill by functional sub-sectors (cont.) (per cent)

~ ~~~ ~~ 1988 1989 1990 1991 1992 1993 1994 1995

Portugal Health .. . . 27.8 32.9 14.4 7.7 .. .. Education .. . . 20.2 34.8 18.1 4.2 .. .. Defence .. .. 12.5 15.2 16.9 0.2 .. .. Sweden Health3 7.7 9.4 13.5 4.4 -13.8 -2.3 Educat ion4 7.1 3.8 17.7 1.7 3.0 -1.3 .. .. Police 6.5 6.1 25.7 9.1 2.1 4.1 2.0 .. Defence 1.9 14.8 14.5 5.6 -1.3 8.1 -10.0 .. 5 Public utilities 2.4 7.2 11.0 -2.0 -13.5 -35.0 -67.7 .. University 6.7 14.5 16.4 10.6 2.6 11.1 -1.6 .. judiciary 10.6 13.4 13.9 5.6 -3.9 4.7 3.5 .. Switzerland Defence 3.4 4.5 7.1 8.9 6.6 1.6 Turkey2 Health 74.4 168.7 118.7 79.0 102.7 71.0 68.4 60.9 Education 67.8 153.3 114.8 78.2 94.5 80.1 50.8 61.0 Police 67.0 138.6 97.9 81.7 85.7 79.0 77.1 66.5 Defence 62.5 149.6 101.9 98.4 99.2 82.0 86.1 51.5 United States Defence 2.2 3.9 1.7 5.4 1.5 1.7 -4.0 0.7

1. Changes in classification in 1992. 2. Central government. 3. Regional administration. 4. Local administration. 5. The Post office status changes in 1994, and is now included in the private sector

increase in basic pay and locality pay increases ranging from 3.74 to 8.53 per cent. In those countries which have experimented in recent times with wage-restraint measures (Australia, Canada, Finland, Sweden, the United Kingdom), average earnings has nonetheless also continued to rise - albeit less than it might have done without the austerity measures - for “structural” reasons (i.e. seniority where the system is maintained, promotion and upgrading, implementation of a new job classification system etc.) relating to salaried staff. In these countries, and in others like Denmark and Iceland (Figure 2), there are no longer any sharp declines in purchasing power, as there had been in the early 1990s. From the small increase in wages in real terms from 1993-94, it can be assumed that the margin of manoeuvre allowed by the governments in order to pay for both general pay increases and local reaction to labour pressures was PRESENTATION OF THE STA TISTICAL DATA

Table 5. Annual changes in average gross earnings and negotiated wages in the public sector and consumer prices (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

Australia Actual average gross earnings Total 7.3 7.8 5.7 5.4 5.5 3.1 . . .. Commonwealth 9.0 6.4 5.2 6.2 6.0 5.6 . . .. State 7.0 7.6 6.4 5.7 5.9 2.1 .. .. Local 3.9 14.1 1.0 2.1 4.1 2.7 .. .. Consumer prices 7.3 7.5 7.3 3.2 1.0 1.8 1.9 4.6

Austria Negotiated wages Federal government 2.0 2.9 2.9 5.9 4.3 4.0 2.6 2.9 Consumer prices 1.9 2.6 3.3 3.3 4.0 3.6 3.0 2.2

Canada Actual average gross earnings Total 1.5 9.1 6.5 1.3 4.4 3.1 .. .. Negotiated wages Total 4.2 5.6 5.5 5.2 2.8 0.2 0.0 0.0 Consumer prices 4.0 5.0 4.8 5.6 1.5 1.8 0.2 2.2

Denmark Average gross earnings per capita Total 6.5 3.0 2.6 2.8 3.5 2.4 2.2 __ Negotiated wages Total 4.0 2.9 2.7 2.4 2.8 1.6 1.8 __ Consumer prices 4.5 4.8 2.6 2.4 2.1 1.3 2.0 2.1

Finland Actual average gross earnings Central government 11.3 6.7 9.0 5.5 1.6 0.0 1.2 2.4 Local government 7.5 8.3 9.6 7.0 2.6 1.6 0.7 3.7 Negotiated wages Central government 10.5 5.4 7.4 4.2 0.9 0.0 0.1 1.8 Local government 7.4 7.2 6.7 4.9 1.1 0.0 0.0 3.1 Consumer prices 5.1 6.6 6.1 4.3 2.9 2.2 1.1 1.0

France Actual average net earnings Central government 3.2 5.1 4.8 3.7 4.8 4.0 1.8 Negotiated wages Central government 2.0 2.7 2.5 1.5 2.7 1.7 2.3 2.6 Consumer prices 2.7 3.6 3.4 3.2 2.4 2.1 1.7 1.7

Germany Average gross earnings per capita Total 1.9 1.9 5.2 7.5 5.7 3.5 . . .. Federal government 1.3 1.9 8.0 10.2 6.6 4.9 _. .. Lander 2.0 1.8 4.4 6.4 6.2 3.8 __ .. Municipalities 1.7 2.6 4.6 7.2 4.1 2.5 __ .. 271 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 5. Annual changes in average gross earnings and negotiated wages in the public sector and consumer prices (cont.) (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

Germany (cont.) Negotiated wages Total 2.0 1.7 3.5 5.6 5.6 3.1 .. Federal government 2.0 1.7 3.3 5.4 5.5 3.1 2.0 3.2 Lander 2.0 1.7 3.8 5.5 5.7 5.3 .. .. Municipalities 2.0 1.7 3.9 5.9 5.6 3.0 .. .. Consumer prices 1.3 2.8 2.7 3.6 5.1 4.5 2.7 1.8 Ireland Negotiated wages Total 2.5 2.5 2.5 4.0 3.0 3.8 2.0 2.5 Consumer prices 2.1 4.1 3.3 3.2 3.1 1.4 2.3 2.5 Iceland Actual average gross earnings Total .. . . 9.1 10.9 2.2 1.4 .. .. Negotiated wages Total . . 3.0 5.9 5.4 1.7 0.0 .. .. Consumer prices 25.7 20.8 15.5 6.8 4.0 4.0 1.6 1.7 Italy Average gross earnings per capita Total 10.9 5.8 18.4 7.9 2.6 2.5 .. .. Negotiated wages Total . . 10.7 10.6 7.6 .. .. 0.9 2.6 Consumer prices 5.0 6.6 6.1 6.5 5.3 4.2 3.9 5.4 Luxembourg Actual average gross earnings Total 7.5 2.4 12.0 6.8 8.6 .. .. Negotiated wages Total 1.0 . . 2.5 . . 1.8 1.5 .. .. Consumer prices 1.4 3.4 3.7 3.1 3.2 3.6 2.2 1.9 Mexico Actual average gross earnings Total .. .. 13.1 7.0 7.0 .. Negotiated wages Total ...... 10.0 7.0 7.0 .. Consumer prices 114.2 20.0 26.7 22.7 15.5 9.8 7.0 35.0 Netherlands Average gross earnings per capita Total 4.0 5.0 2.6 5.2 4.8 3.1 1.9 .. Negotiated wages Total 0.4 0.7 2.5 2.9 3.6 1.9 1.2 0.9 Consumer prices 0.7 1.1 2.5 3.2 3.2 2.6 2.8 1.9 New Zealand Actual average gross earnings Total ...... 1.2 0.9 2.6 Central Government ...... 1.0 0.8 2.3 Local government ...... 2.7 1.2 5.4 E PRESENTATION OF THE STAJISTICAL DATA

Table 5. Annual changes in average gross earnings and negotiated wages in the public sector and consumer prices (cont.) (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

New Zealand (cont.) Negotiated wages Total ...... 0.8

Central Government ...... , 1.9 0.3 0.8 0.8

Local government ...... , 2.1 0.4 0.9 1.3 Consumer prices 6.4 5.7 6.1 2.6 1.0 1.3 1.8 3.8

Portugal Negotiated wages Total 8.0 8.0 12.0 13.5 10.0 5.0 2.5 .. Consumer prices 9.7 12.6 13.4 11.4 8.9 6.5 5.2 4.1

Spain Actual average gross earnings Central administration . 7.5 8.2 9.9 8.6 3.5 Autonomous communities ...... 9.1 .. General increases Central administration _. 5.6 6.0 7.2 5.7 1.9 _. .. Autonomous communities _. 5.6 6.0 7.2 5.7 1.9 .. .. Local administration _. 5.6 6.0 7.2 5.7 1.9 _. .. Consumer prices 4.8 6.8 6.7 5.9 5.9 4.6 4.7 4.7

Sweden Actual average gross earnings Total 4.4 8.9 13.5 4.5 6.5 3.3 .. .. Central Government 7.1 11.6 10.4 4.3 3.9 2.7 4.8 3.7 Regional administration 1.0 8.2 20.0 5.6 6.0 2.1 .. .. Local government 1.1 7.7 20.4 3.4 10.7 0.7 __ .. Negotiated wages Total 6.7 10.7 7.2 1.0 2.8 0.0 .. .. Central Government 6.6 10.7 7.4 1.0 2.8 0.0 3.1 2.0 Regional administration 9.5 7.8 7.8 1.4 3.3 0.0 .. .. Local government 7.9 7.9 8.0 1.6 3.4 0.0 __ .. Consumer prices 6.1 6.6 10.4 9.7 2.6 4.7 2.4 2.9

Switzerland Negotiated wages Total 2.0 2.0 5.0 6.0 4.5 3.0 1.7 0.0 Consumer prices 1.9 3.2 5.4 5.9 4.0 3.3 0.9 1.8

United Kingdom Actual average gross earnings Total 10.5 10.0 5.4 15.2 8.9 4.5 2.7 1.9 Central Government ...... 9.0 3.2 4.1 3.2 Local authorities ...... 9.0 4.8 2.2 -0.5 Consumer prices 4.9 7.8 9.5 5.9 3.7 1.6 2.5 3.4 291 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 5. Annual changes in average gross earnings and negotiated wages in the public sector and consumer prices (cont.) (per cent)

1988 1989 1990 1991 1992 1993 1994 1995

United States Average gross earnings per capita Total 4.4 4.6 5.3 4.8 4.0 3.1 2.5 2.6 Federal government 4.0 3.1 5.3 7.7 7.5 5.3 3.0 1.3 State 4.3 5.0 5.5 4.3 2.4 3.1 3.1 3.3 Local government 4.7 5.2 5.2 4.2 3.4 2.6 2.4 3.9 Recommendations Federal government 2.0 4.1 3.6 4.1 4.2 3.7 0.0 2.0 Consumer prices 4.1 4.8 5.4 4.2 3.0 3.0 2.6 2.8

Source: Consumer prices, OECD Economic Outlook, June 1996

small. One can also raise the hypothesis that public sector employees’ aims were more often related to subjects other than pay (training, working time, etc.). Over the next few years, it will be interesting to look at trends in public wages in real terms in countries where the public sector pay determination system changed, like Italy, which changed its pay determination system in 1993, or Spain which suspended public sector pay bargaining in 1994. It will be possible to see how, in countries where pay bargaining is centralised, the social partners react after such a moratorium on negotiations, and to determine whether these measures have really stemmed growth of the pay bill and average earnings. The pay of public service employees can develop in several directions in the same country. There can be differences among individuals, groups or functional sub-sectors. Observation of pay dispersion over several years (see Table 6) makes it possible to examine changes in the relative pay situation in the various countries. Changes in pay distribution have been most marked in countries which have altered their pay determination systems. In Australia, pay spread widened from 1988 to 1993 as a result of slower growth in the lower earnings (those corresponding to the first decile) than in median earnings. Pay spread also widened considerably in Finland from 1992 to 1994. The main reasons for this increase in pay dispersion are structural because, after 1992, statistical data excluded public enterprises. Only quartiles (and not deciles as with the countries in the table) are available for Sweden. These exclude extremes but clearly show a widening in dispersion from 1992 to 1994, which may be ascribed to an increase in levels of pay in the upper quartile compared with median pay and a relative decline in the pay corresponding to the first quartile. Over the period 1988-1994, the ratio of the PRESENTA TlON OF THE STATISTICAL DATA

+ Figure 2. Changes in average gross earnings in real terms from I988 to I994 in the public sector1

10.0 10.0 7.5 7.5 r.. Germany Australia rn 3.U /' / 3.U Denmark 2.5 K - 0.0 -2.5 -5.0 -5.0 -7.5 -7.5 I988 89 90 91 92 93 94

12.5 12.5 10.0 10.0 7.5 7.5 /Finland Spain 5.0 France 5.0 2.5 / .a...... -...... 6"3L 2.5 .---... n...... - ---:22 \ - 0.0 0.0 *--w -.-_. I-- -2.5 7 -2.5 -5.0 United States -5.0 -7.5 -7.5 I988 89 90 91 92 93 94

12.5 12.5 10.0 10.0 7.5 7.5 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 -2.5 -5.0 -5.0 -7.5 -7.5 I988 89 90 91 92 93 94

I. Total public sector except for: - Spain: Central Government. - France: Central Administration. - Sweden: Central government. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 6. Dispersion of earnings in the public sector*

1988 1989 1990 1991 1992 1993 1994 1995

Australia D9/D 1 3.07 3.27 3.1 1 3.10 3.20 3.43 .. .. D9/D5 1.60 1.60 1.58 1.58 1.59 1.58 .. .. D5/D 1 1.92 2.05 1.96 1.96 2.0 1 2. I6 .. .. Finland1' D9/D 1 2.23 2.23 2.28 2.26 2.23 2.33 2.37 2.32 D9/D5 1.68 1.68 1.71 1.71 1.70 1.72 1.73 1.72 D5/D 1 1.33 1.32 1.33 1.32 1.32 1.35 1.37 1.35

Francel D9/D I 2.28 .. 2.42 2.41 2.40 2.41 2.38 2.36 D9/D5 1.50 .. 1.53 1.56 I .58 1.59 1.60 1.59 D5/D 1 1.52 .. 1.58 1.54 1.52 1.52 1.49 1.48

Iceland D9/D 1 .. .. 2.83 2.99 2.96 2.82 .. .. D9/D5 .. .. 1.63 1.63 1.66 1.62 .. .. D5/D 1 .. .. 1.73 1.83 1.78 1.75 .. ..

Luxembourg1. D9/D 1 2.41 2.36 2.39 2.47 2.44 2.42 .. .. D9/D5 1.49 1.46 1.47 1.49 1.48 1.44 .. .. D5/D 1 1.62 1.61 1.63 1.66 1.64 1.68 .. .. Netherlands4! D9/D 1 2.33 2.38 2.35 2.39 2.38 2.45 2.45 2.34 D9/D5 .70 1.69 .70 1.73 .71 1.75 .82 1.79 D5/D 1 .37 1.41 .38 1.38 .39 1.40 .35 1.31

Sweden I 03/0 1 .30 1.29 .36 1.31 .31 1.34 .37 .. 03/Q2 .I4 1.15 .I8 1.18 .18 1.20 .2 1 .. 02/Q 1 .I3 1.13 .I6 1.12 .I 1 1.1 1 .I3 ..

United Kingdom D9/D 1 ...... 2.8 1 2.79 2.75 2.71 D9/D5 .. .. 1.66 1.67 1.64 1.62 D5/D 1 .. .. 1.69 1.67 1.68 1.67

* lnterdecile ratio: D9 = upper decile, D5 = median, DI = lower decile, 03= upper quartile, 02= median, 01 = lower quartile. 1. Central government. 2. Including only civil servants at the central government sector, and since 1993, excluding public enterprises. 3. Civil servants only. 4. Including military personnel from 1992. 5. Full-time employees.

upper quartile to the median steadily increased. It may therefore be inferred that the position of the highest paid employees in the public service has improved from year to year. The position of those whose pay was equal to or lower than the lower quartile deteriorated from 1988 to 1990 but moved back towards the median in 1991 and 1992. As can be seen, the gap widened again slightly in 1993. A different situation may be observed in the United Kingdom, where pay dispersion narrowed regularly from 1992 to 1995. The cause was a lowering of the 32 highest pay rates compared with median earnings, whereas the ratio of the lowest PRESENTATION OF THE STATISTICAL DATA pay levels to the median showed little variation. It must be explained, however, that two important opposing factors were in part responsible for this state of affairs: a) decentralisation, which was introduced in some agencies in 1994 and 1995, is expected to increase pay dispersion. But it only came into full effect in April 1996; 6) it concerned only the Civil Service. Sizeable components of the public services, such as health sector nurses, medical auxiliaries and teachers still have their pay rates set by Review Bodies. In the three countries mentioned (Australia, Sweden and the civil service in the United Kingdom), pay dispersion might be expected to change considerably in the direction of even wider differentials, on account of the ways in which they have reformed their pay determination systems. The decentralisation of the pay setting process and the introduction of flexible schemes should lead to differences in pay among individuals and groups within the civil service. In a study conducted for the OECD,' Robert F. Elliott presents detailed findings and concludes that it is still too soon to measure fully the effects of the changes. In France, pay dispersion has slightly decreased since 1990 and from 1990 to 1995, the gap between the pay of the lower decile and the median closed by 10 per cent. Those civil servants paid at or above the ninth decile did not benefit from a similar increase over the period. In Iceland, dispersion broadened in 1991 and 1992 but returned in 1993 to its 1990 level, although the positions of the highest and lowest pay levels shifted in relation to the median, since the gap at the bottom of the ladder widened slightly. In the Netherlands, the pay dispersion decreased in 1995 and was similar to that observed in 1988. However, the ratios to the median pay differed in 1988 and 1995, showing that lowest pay levels have tended to rise since 1994. The above findings would seem to indicate that countries which have undertaken reforms of their pay determination systems experience more changes in pay distribution patterns among employees than do countries with centralised systems. Yet it would be premature to draw conclusions as to the impact of the new civil service pay policies introduced in certain countries. The foregoing statistical observations provide food for thought as to future developments liable to be generated by the different pay determination systems. It is important therefore to examine closely the existing systems in each country. The existing pay systems in the public sector will be described in the following section.

Part 2 DESCRIPTION OF PAY DETERMINATION SYSTEMS

The monographs presented below were collected from an analytical grid aiming to: a) detail the institutional framework of public sector pay determination which, in certain cases, may be at central government or federal civil service level; 6) identify and explain collective pay bargaining machinery; c) determine the degree of financial constraint exercised by the central government in determining pay bill volume or rates of pay; d) assess the financial autonomy of agencies and departments, especially as regards pay and personnel management. On the basis of this information, a specific statistical analysis has been conducted to quantify the degree of decentralisation of the pay determination systems in OECD countries. A decentralisation index has been set up, and then correlated, as well as other variables, with trends in the public sector pay bill. The purpose of this statistical analysis is to show whether there is a statistical link between the reform in pay determination systems and pay bill trends, and if this is the case, to what extent.

AUSTRALIA

Key principles Institutional framework of the pay determination system The pay determination system of the Australian Public Service (APS) has undergone major changes in recent years. The system still in force relies on collective bargaining centralised at federal level. Since 1987, there has been a progressive introduction of collective bargaining at workplace level. In December 1992, an agreement between the Commonwealth government and the public sector unions extended workplace collective bargaining to the whole of the APS. The agreement provides that, within each agency, savings generated by productivity should be pooled in a fund. This “productivity pool” is shared between the agency and the Finance Ministry on respectively a two-thirds and one-third basis. a TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

The agency share is available to finance improved remuneration or conditions. The share going to the Finance Ministry funds a “foldback” mechanism for equal- ising pay in agencies without any agency pay bargain or whose bargain provides little supplementary pay. In September 1995, an agreement was reached between the Commonwealth government and unions which provided for across-the-board salary increases in 1995 and 1996 and allowed for agency agreements on a range of conditions but excluded agency pay bargaining. New federal industrial relations legislation applying to the private and public sectors, the Workplace relations Act 1996 (hereafter referred to as “the Act”), will have implications for the future direction of public sector pay determination. The Act encourages a more direct relationship between employers and employees and increases labour market flexibility through an award system focused on a safety net of minimum wages and conditions. It is intended that actual pay rates will be determined by agreement (union or non-union) at the enterprise level and workplace levels although the application of these provisions to the APS is still to be considered by the Commonwealth government. The States and Territories follow principles determined by State legislation and State industrial tribunals, although these may be influenced by developments at the federal level. The new federal Act includes the referral of industrial relations powers by one State (Victoria) enabling its employers and employees to operate under the federal system; no new State awards or formal agreements will be possible in the State. The Commonwealth government will continue to seek greater harmonisation of the federal and State and Territory systems. Enterprise bargaining is now well established both at the Commonwealth level and in most States and Territories. There are nonetheless marked differences among jurisdictions in the degree of decentralisation. For example, single pay agreements providing standard pay increases apply to the federal core public service and the Northern Territory. Some States have offered standard increases which are available only on certain conditions, e.g. the acceptance of an agency or individual agreement containing a commitment to participate in reforms aimed at improving productivity and/or the achievement of certain productivity targets. Again, some States allow differential pay increases at the agency level, providing that these can be funded by the agency concerned.

Factors considered in adjusting pay

A link exists between pay increases and measures to improve efficiency (including modernisation of classification structures) and productivity. There was & a tradition of taking note of private sector market comparisons and labour market DESCRIPTION OF PAY DETERMlNATlON SYSTEMS pressures in setting public sector pay, but these have not served as a basis for pay adjustments at the federal level for some time.

Principles for determining individual remuneration The job classification system and structure are common to all employees in the federal core public service. There is some scope for flexibility, thanks to “broadbanding” of pay scales, at agency level. For most staff the basic salary plus superannuation constitutes the whole of pay. For some staff, however, this is supplemented by various allowances, such as an expense allowance payable to middle managers, or performance pay applicable to senior executives and some middle managers. Remuneration “packaging” for senior executives is practised, in various forms, in the federal core public service and several States. Pay increases based on seniority are generally automatic. They may be withheld on grounds of unsatisfactory conduct, diligence and efficiency. In some agencies of the federal core public service, funds are reserved for accelerated advancement or salary advancement based on performance or the attainment of specified competencies or qualifications.

Role of the federal government in setting pay bill volume The Commonwealth Government sets the budgets of APS agencies, from which they must fund salary costs. It has been committed for some years to achieving substantial budget savings. In this context, most public service agencies have undertaken downsizing programmes which will result in reductions in the total pay bill. Broadly speaking, pay bill volume is set in advance on the basis of downsizing programmes. Pay bill volume also depends on across-the-board pay increases over a specified period of time under the collective agreements to which the Common- wealth Government is party. In some cases, these increases are paid only if certain conditions are met. Rates of progression of individuals within salary scales and changes in personnel strength affect actual pay expenditure, but the driving factor is that agencies must operate within their running costs as determined by the budget process.

Federal government financial constraints on agencies or departments At the federal level, the APS comprises some 92 departments and agencies, which account for about 36 per cent of Commonwealth employment including defence. All the Commonwealth agencies funded by the Budget manage their operating (running cost) budgets independently in accordance with rules designed to enable them to make the most efficient use of available resources. 37/ TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Running costs combine salaries with other expense items such as superannuation, purchase of goods and services, consultancy fees, etc. This system allows agencies greater flexibility in allocating their resources. Within the running costs system, senior executive salaries are, however, treated separately as a national item which sets an upper limit on their amount, performance pay and higher duties allowances. No distinction is made between personnel and other administrative costs (with the exception of the senior executive salaries mentioned above). Agencies may thus transfer funds between administrative costs and personnel costs without having to obtain the agreement of the Department of Finance. They may overrun their budget in one financial year and reduce their expenditure the following year. Or they may choose to increase their expenditure beyond their running costs budget by borrowing against future years. These arrangements give agencies flexibility in responding to changing priorities. Multi-year borrowings are subject to an interest rate charge. The following running costs rules enable agencies to plan spending without being hampered by cut-off dates: - up to 10 per cent of the running costs budget may be carried forward from any one year, or may be borrowed from any one year with the agreement of the Department of Finance; - borrowings of more than 6 per cent require a resource agreement with the Department of Finance; - agencies may opt for multi-year borrowing through a resource agreement; - borrowings of over 10 per cent are allowed only in exceptional circumstances. The volume of the running costs budget is determined within each agency by various considerations: new policy and saving decisions; carryover and borrowing of funds; indexation of administrative and property operating expenses; salary supplements; foreign exchange rates; receipts from user charging; planned productivity gains, including the application of an efficiency dividend; workload adjustment agreements.

Role of the federal government in co-ordinating pay setting at the decentralised level Negotiations are generally overseen by the federal government, which approves the size of the increases granted. Even where agencies have discretion to negotiate pay rates, they must generally act within a policy and budgetary framework set by the government which, for example, may determine how far it will supplement agency budgets to cover the cost of pay increases. State and Commonwealth Governments monitor and regularly exchange information on the DESCRIPTION OF PAY DETERMINATION SYSTEMS

outcome of wage bargaining. The monitoring of productivity agreements is more variable.

Public employment by level of government in 1995

Commonwealth 173 400 14.3% State 893 500 74.0% Local 141 000 11.7% Total 1 208 000 100.0%

AUSTRIA Key principles Institutional framework of the pay determination system There is a solid tradition of negotiation between employers and union representatives as regards remuneration and conditions of service for both civil servants and contract employees. At federal level, negotiations take place before the initiation of pay-setting legislative procedures. Representatives of state and municipal administrations participate in pay negotiations. Agreements apply to all public services. For a few groups of contract employees (at federal level), no legislative procedure is required, in which case the Ministry concerned concludes the agreement.

Factors considered in adjusting pay The factors generally considered in the adjustment of public sector pay are the rate of inflation, the rate of economic growth and trends in private sector pay. In recent years, growing attention has been paid to overall budgetary conditions. The agreement for 1996 and 1997, which contains no increase in pay scales but provides for two lump sum payments, is viewed as a contribution by public sector employees to unavoidable government measures for cutting public spending. Pay adjustment negotiations are normally held once a year. The latest agreement covers a 2 1- month period, however. Special circumstances may warrant the opening of negotiations, subject to central government authorisation. When agreement is reached, an implementing Bill is tabled.

Principles for determining individual remuneration The job classification system and pay scale are common to all federal employees, in the sense that employees in the same category with the same seniority who are assigned similar duties are paid alike. There is no single system applying to both civil servants and contract employees. The federal civil service is 391 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

divided into nine different groups, each reflecting the level of education required and the duties assigned. Their total remuneration may be made up of several items (basic salary and special allowances). In some cases, matching groups of contract employees may exist. Within the groups “general administration”, “police” and “army”, promotion is decided by either the traditional grade system or the reformed remuneration system, which is mandatory for new appointees and optional for serving staff. The traditional system of promotion consists in appointment to a higher grade. Only civil servants occupying special positions reach the top grade of their group. These special positions are primarily connected with the central administration. Promotion to higher grades depends on the expiry of certain waiting periods, whose duration in turn depends on the position held and on performance rating. The latter is, in practice, a formality which provides very little information about actual job performance. The heavy emphasis on the time factor is a source of frustration to civil servants who assume positions of responsibility at an early age. In the calculation of salaries, promotion is distinct from seniority. Civil servants automatically move up one salary step every second year. The reformed remuneration system is characterised by a) a uniform scale of salary steps for each level (basic salary and biennial increments) and 6) an immediately effective supplement for the performance of higher duties. This supplement is determined in the light of a job classification assessment. The new system is aimed at providing pay in accordance with the value of the position held. It does not include compensation mechanisms for individual high perform- ers. The question of how to define and measure individual performance is still under discussion. Pay for other groups of civil servants and all contract employees is set by a uniform scale of pay steps for each level. Employees automatically move up to the next step every two years. A new pay scheme covering senior level contract employees would be needed in order to reduce the proportion of civil servants at these levels. A new contract scheme of this kind is at present under consideration within the framework of a new labour law for federal service staff. The old system continues to apply in the states and municipalities.

Distribution of public sector employment Higher education, the police, the army and justice form part of the federal service, which comprises a total of 230 000 employees. Although the postal and telecommunications services and the Austrian railways are now separate legal entities, most postal staff remain federal civil servants. About 35 per cent of state employees are primary and secondary school teachers. Employees in health L!& institutions also represent a large proportion of the public service in the states DESCRIPTION OF PAY DETERMINATION SYSTEMS

and municipalities. Contract employees make up 40 per cent of the work force in the federal administration, 70 per cent in the Luuder and 84 per cent in the municipalities. The ratio varies according to job level. Civil servants are to be found in higher proportions in the senior civil service than in the lower levels of the administration.

Role of the central government in setting pay bill volume There is no central structure at federal government level for setting pay bill volume for the public service as a whole. Each level of government (federal, state, municipal) is responsible for setting its own pay bill volume on the basis of the actual number of employees and, where applicable, downsizing programmes. The number of employees is limited by “staff plans” which are built into the annual finance Acts. They determine the number of civil servants and contract employees for a given year. At federal level, data on personnel expenditure and compliance with annual budget principles are checked monthly. In future years, the government intends to limit federal pay bill volume. 9 600 posts are due to be abolished in 1996 and 1997, while nominal pay bill volume will be frozen until 2000 at the 1997 level. Funds budgeted for personnel costs are separated from running costs. The transfer of funds towards personnel costs, although possible in principle, is contrary to current government policies.

Decentralisation of pay setting Although bonuses make up only a small percentage of the total pay bill, their distribution is highly decentralised. Policies range from indiscriminate distribution among large grqups of staff to delegation to immediate superiors of the management and distribution of the allotted sums. The pay bill of the federal administration breaks down as follows:

Basic salaries 69.3 Supplements 5.8 Overtime pay 10.0 Reimbursement of expenses 1.8 Dependent child allowance 0.4 Other allowances 4.4 Employer‘s social security contribution 8.2

Additional information Implementation of the reformed remuneration system requires job classification reflecting the profile of individual posts. For this purpose, 1 500 selected 3 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

posts at all levels of the federal administration have been analytically classified. By the end of August 1996, the classification of 120 000 posts held by civil servants in the general administration, the police and the army was scheduled to be completed.

Public employment by level of government in 1994

Federa I Govern men t 235 297 44.5% Lander 148 416 28.1% Municipalities 144 513 27.4% Total 528 226 100.0%

CANADA~

Key principles

Institutional framework of the pay determination system Collective bargaining in the Canadian public service is centralised at federal level, except for management grades and a small proportion of non-management employees not covered by collective agreements. 70 occupational groups, represented by 17 negotiating units, are involved in negotiations. A planned reform of the job classification system, due to take effect in 1998 will considerably alter this scheme of things. This reform will reduce the number of bargaining groups and each of these will be evaluated against a common evaluation plan. Most of the health and education sectors are managed at provincial level, this being the level at which bargaining takes place.

Factors considered in adjusting pay The major factor in pay adjustment has traditionally been comparison of pay levels between the public and private sectors for similar occupations found in large establishments of other sectors of the economy. During the 1980s, this approach was largely replaced by master agreements or patter increases which tended to reflect the general pay increases negotiated in the private and other public sectors. Since the early 1990s, however, the employer’s ability to pay has superseded wage comparability and collective bargaining developments in other sectors of the economy. The period 1991-1997 has been marked by a suspension of collective bargaining. In February 1993, a 3 per cent pay rise was granted unilaterally by the government without prior negotiation. From June 1994 to June 1996, wage constraints were further reinforced by a suspension of annual L5L increments. DESCRIPTION OF PAY DETERMlNATlON SYSTEMS

Principles for determining individual remuneration

Each of the 70 occupational groups negotiates its own salary scales at central level. Regional rates apply to certain groups especially sensitive to local or occupational labour market pressures. Salary scales are the dominant component of pay. In some occupations, however, allowances and premiums related to extra responsibilities, skills and working conditions, are significant. Employees in most female-dominated occupations also receive equal pay adjustments. The number of years necessary to reach the top of the scale in the same post is limited (generally about 4 years) and annual increases are not automatic but can be denied where performance is unsatisfactory. The job classification system still in force is based on position descriptions, which can create a certain amount of rigidity in staff management. The new classification system, due to come into effect at the beginning of 1998, will take into account more aspects of work, and will be consistent across occupations.

Role of the central government in setting pay bill volume The central government influences pay bill volume through the setting of general pay increases, normally by negotiation. Since the early 1990s, these increases have been severely limited by the government’s austerity policy. The federal administration’s downsizing programmes do not have a direct impact on personnel costs, since these are managed by government departments on a decentralised basis (see below). Only executive-grade civil servants remain under the control of the Treasury Board Secretariat.

Decentrafisation of running costs budget management

From April 1993, the government decided to decentralise running costs budget management throughout the federal administration. Since then, these budgets are drawn up on the basis of total expenditure, including pay, training costs and secondary capital outlays. Control on the numbers of employees by the central agency was ended at that date. Government departments are now responsible for all staff costs other than those expressly covered by the Treasury Board (see Annex 2). The costs of certain health and social benefits (disability, illness, etc.) are not incorporated in the operating budgets of government departments. Every new person hired therefore represents an added expense for the Treasury Board. In order to offset such expense, savings equal to 20 per cent of that person’s actual pay must be made. Conversely, any reduction in the pay bill that transfers appropriations to other expenditure confers a credit of 20 per cent of the saving achieved. 3 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Financial constraints imposed on departments by the federal government In the past, the Treasury Board usually adjusted the pay bill volume of each department on the basis of general pay increases. Under the decentralised system of running costs budget management, the annual adjustment of the overall budget depends on the government’s ability to pay. Until the 1994-1995 fiscal year, only that portion of the budget which corresponded to the pay bill was adjusted in line with the rate of inflation. Expenditure had been divided between pay and other operating expenses on the basis of the 1992-1993 figures, despite the fact that government departments changed these proportions in subsequent years. The Treasury Board revised its budgeting procedure as from 1995-1996, introducing a coefficient of adjustment to be applied to all items of expenditure, whatever their nature. Appropriations unspent at the end of the year can be carried forward to the following year, up to a limit of 2 per cent of the operating budget. The fact of being unable to carry forward appropriations had previously encouraged administrators to use up all their remaining funds by the end of each year. The federal government’s programme for cutting public spending has led to a reduction in the running costs budgets of all departments. These savings will involve the elimination of 45 000 federal service jobs over three years. Levels have been determined department by department. An additional year of restraint has been approved, and will lead to reduced expenditures equivalent to about 10 000 more jobs. This extra measure will be generally applicable to all departments. Management of the staff under Treasury Board jurisdiction, 220 000 employees in all, has been decentralised, as described above. Only the following agencies have authority to establish their own job classification system and rates of pay: - Incomes Board (4 000 employees); - Canadian Parks (6 000 employees); - Food Inspection Services (6 000 employees); - Royal Canadian Mounted Police (20 000 employees); - i.e. 36 000 employees in all, or 11 per cent of federal personnel.

Public employment by level of government in 1995

Federal administration 371 015 16.3% Provincial and territorial administration 1 004 721 44.2% Local administration 899 397 39.5% Total 2 275 133 100.0% DESCRIPTION OF PAY DETERMINATION SYSTEMS

DENMARK

Key principles

Institutional framework of the pay determination system

In Denmark, the public sector is divided into three levels: the State, 14 counties and 275 municipalities. The negotiations and consensus between employers and employees often result in agreements that apply to all levels of the public sector (see table for key activities and the number of employees in each level of government). The Finance Ministry concludes agreements regarding across-the- board pay increases and working conditions with the Danish Central Federation State Employees Organisation (CFU). Ministries and other organisations make their own agreements with the Finance Ministry on questions pertaining to individual groups of employees. In institutions with more than twenty five employees, the employees may require that a co-operation committee be formed. The function of these committees is to influence personnel policy and working conditions. In addition, trade unions are represented in the workplace by shop stewards (usually, one shop steward for five or more employees). The State employs civil servants as well as employees employed under collective agreements. Regional and local levels of government largely make use of employees hired under collective agreements: 80-85 per cent of local government employees, compared to only 50 per cent of central government employees. Only a very small number of employees are hired under individual contracts. Typically, civil servants are groups such as judges and prosecutors, the police, management staff, the armed forces and some groups in the State Rail- ways and the Postal Services. Other groups are most often employed under a collective agreement. Individual contracts are especially used for the appointment of senior executive staff. The appointing authority may find it appropriate to use a more flexible, individualised pay system (performance-based salary). It may also wish to introduce competition clauses and specific retirement schemes. Collective pay agreements entered into with the State apply to civil servants as well as employees under collective agreements. The same salary scales also apply to both these groups.

Factors considered in adjusting pay

Every second year agreements on across-the-board pay increases and a regulatory mechanism are negotiated. The regulatory mechanism ensures that public service employees receive a similar pay increase as employees in the private sector. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Principles for determining individual remuneration The pay system reflects factors relating to the job, the individual and the job market. Elements making up total remuneration are: - Basic pay, based on the pay scale. The pay scale consists of 42 grades, each including different steps. Posts are graded in agreement with the unions, following centralised negotiations with the Finance Ministry. Posts up to grade 36 are graded individually at the decentralised level. Seniority upgrades are automatic. The number of years needed to reach the highest step can vary significantly between posts. - Salary supplements. Supplements are paid for various reasons, and are allocated either centrally or locally. Central level: - Post-specific supplements. The same amount is paid to all employees holding the same post. - Allowances for overtime and unusual hours. Local level: - Supplements for employees hired under short-term contracts. The amount is usually 15-20 per cent of the basic pay for contracts ranging from three to nine years. The are used primarily for managerial posts. - Task-specific supplements, such as for hazardous working conditions. - Local supplements, paid on a collective or individual basis, within the limits of the package paid by the central government. The package represents 1.5 per cent of the total pay bill for employees, excluding managerial staff. - Managerial staff is paid a special package, which represents 6.5 per cent of the total pay bill for this category. - Individual bonuses paid to certain categories of employees, such as academic staff, depending on employment demands on the job market. Some of these bonuses are paid out of the funds set aside for local supplements. - Productivity (or efficiency) bonuses can be paid to groups of employees who have improved efficiency or production quality, under a negotiated plan. - There are also mechanisms for the classification of new posts or the reclassification of existing posts. DESCRIPTION OF PAY DETERMINATION SYSTEMS

Role of the government in setting pay bill volume Factors taken into account in determining the amount of the pay bill The government sets the total pay bill on the basis of the previous year’s spending on personnel as well as planned cut-backs in staff. It also takes into account any across-the-board increases that have been negotiated. In addition, it sets limits on the number of managerial posts in each ministry. Apart from the managerial level, each ministry determines, subject to budgetary constraints, the size of its staff.

Central government control of labour cost increases Centralised negotiations result in an agreement concerning the total compensation cost increase due to across-the-board pay increases. The cost of new programmes, such as maternity leave programmes, must be added to this. Com- pensation costs include local salary supplements and funds set aside for the reclassification of posts (individually or by group).

Determining the running costs budgets About half the government agencies have a global operating budget, where labour costs are not differentiated from other running costs. The size of these budgets is often set on the basis of the previous year’s budget, while taking across-the-board pay increases, decided at the central level, into account.

Scope for flexibility at the decentralised level The government enters into a central agreement with the unions regarding the size of the package set aside for “local supplements”. These funds are distributed after negotiations in the workplace (see above). The State does not participate in these local negotiations. Its role is limited to setting guidelines for the use of local funds.

Performance-based remuneration Performance-based remuneration is not yet widely used. Only a few agencies, employing approximately 2 per cent of the central government’s personnel, use this system.

Recent developments in the pay determination system The 1997 collective bargaining round agreed on a new pay system which, for employees with university degrees, will be implemented from January 1998. For 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

blue collar workers a new system will be on trial from January 1998 till March 200 1. The purpose of the new system is to increase flexibility. Individual pay has been given a higher priority and factors such as competence, qualifications and results of individual or groups will be reflected and used to set wages in the new performance-based salary system. The process of pay setting will be as follows: a) a basic pay centrally negotiated (between the Ministry of Finance and the Public Sector Unions); 6) supplements for groups or individuals with either certain functions or qualifications locally negotiated (between the local employer and the local union representative).

Civil Service employment by level of government in 1994

I Central Government 189 600 27.1% Local Government 511 000 72.9% Total 700 600 100.0%

Main activities of the different levels of government: State: central administration, railways, defence, police, postal services, universi - ties and Church. Counties: Hospitals and high schools. Municipalities: primary schools and care of children, elderly and disabled persons.

FINLAND

Key principles

Institutional framework of the pay determination system Until recently, collective bargaining was organised separately for established civil servants and non-established employees, and separate agreements were reached for central and local government. A new pay determination system has been introduced as part of a broad government programme aimed, among other things, at developing negotiation at agency and department level. The pay system reform launched in 1992 under the State Employer’s Salary and Wage Policy Programme is now being implemented. Each agency will eventu- ally have its own pay determination system. Progress in the implementation of the Programme varies according to agency: - the new results-based system is operational in five agencies employing a total of 6 000 staff, or about 5 per cent of central government employment; - twenty-seven agencies employing a total of 67 000 staff (50 per cent of central government employment) are well on the way towards implementing the Programme; DESCRIPTION OF PAY DEJERMlNAJlON SYSTEMS

- thirty-one agencies (19 000 staff) have recently begun work on implementation; - nineteen agencies set pay partly on the basis of results.

Factors considered in adjusting pay Wage policies in the 1970s and 1980s were strongly influenced in both the public and private sectors by general incomes policy agreements. Reform of the pay determination system is aimed in the long run at achieving greater pay flexibility, more faithfully reflecting productivity and labour market pressures. Agreements do not stipulate the frequency of negotiations. Contacts on the main collective bargaining issues are usually held once a year. The negotiating agenda is determined in relation to the incomes policy agreements. For example, the latest employment and labour market policy agreement, covering the years 1996 and 1997, provides for two sets of negotiations, one in August 1996 and the other in November 1997.

Principles for determining individual remuneration The single pay scale which was in force prior to the pay system reform has been abandoned and replaced by graduated scales based on comparative job requirements, results and relative value. Each agency may establish its own job classification. The three main criteria for determining individual remuneration are: - nature of post; - personal performance; - group performance. The new system weakens the former automatic linkages tying increments to seniority or formal qualifications. The number of years needed to reach the top of the scale in the same post varies according to the different agreements, but eighteen years is the most typical case.

Staffdistribution Public employment is divided between the central level, which employs 25 per cent of public servants, and local government which employs the remainder. The main sectors organised at local level are: - health, with 124 500 employees (29.3 per cent of local government personnel); - education, with 106 250 employees (25.3 per cent); - social work, with 112 600 employees (26.5 per cent). TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Role of the central government in setting pay bill volume The budget process changed considerably from I99 1 to 1995. By 1995, as may be seen from the figures below, hardly any agencies still operated under the traditional budget system (managed by central government). Almost all agencies had become result-budgeted or net-budgeted (the pay bill forming part of running costs).

Breakdown of agencies according to the classifications of budget-techniques

Type of agencies: 1985 1991 1995

Basic agencies 204 174 1 Result-budgeted agencies 0 12 77 Net-budgeted agencies 0 0 98 Institutions with business action 18 7 2 Unincorporated enterprises 0 7 6 Central government sector, total 222 200 184

Financial constraints imposed on agencies by the central government Agency running costs budgets do not distinguish personnel from other administrative costs. The allocation of funds by different types of expenditure is left to the discretion of agency heads. Personnel costs represent 50-85 per cent of total running costs appropriations. The budget period is two years. Appropria- tions not used during the first fiscal year may thus be carried forward to the following year. Staff strength ceilings for each of the fourteen Ministerial “spheres” were fixed in the budgets covering the period 1992- 1996. They were a tool used by the central government to carry out its civil service downsizing programme. As from 1997, the ceilings will be abolished. Pay bill volume is determined in practice at agency level. The central government influences pay bill volume, and hence the size of the total running costs budget, by determining the amount of across-the-board salary increases.

Determining the volume of agency running costs budgets During the 1990s, the volume of operating appropriations underwent a continuing series of cuts. A state of equilibrium should be reached in the 1997 fiscal year, and no further cuts should be made after that date. Until 199 1, running costs appropriations had been determined on the basis of across-the-board pay increases. From 1992 to 1995, very few such increases were awarded. The first W agreement in 1995 for another across-the-board increase was not budgeted by the DESCRIPTION OF PAY DETERMINATION SYSTEMS central government. In September 1995, a general income policy agreement was concluded and will be budgeted for the period 1995-1997. Agencies will be free to dispose of any productivity gains they achieve during the equilibrium period and these gains will not be subject to cuts, even partial cuts. Gains resulting from structural changes, the closing or the merging of agencies, etc. will not as a rule be left for them to use. Changes in staff numbers do not affect running costs appropriations if these changes are carried out by the agencies themselves. A special assessment is carried out where structural or organisational changes are the result of policy or budgetary decisions. Budget volume is determined by negotiation among the Ministry of Finance and the other Ministries. It is then submitted to Parliament for approval.

Role of the central government in co-ordinating pay setting at the decentralised level Collective bargaining at central level, in which the Ministry of Finance represents the employer, sets pay policy principles and guidelines and determines the general framework for bargaining at agency level. The results of the agency-level negotiations are monitored by the Ministry of Finance and the different Ministries concerned.

Public employment by level of government in 1995

Central administration 125 000 24.1% Local government 394 000 75.9% Total 519 000 IOO.O%

FRANCE

Key principles

Institutional framework of the pay determination system The public service pay determination system is centralised and applies to employees of State administrations, local government and public hospitals. It also covers military personnel, magistrates and those employees without “public servant” status. Collective bargaining is conducted at central level. It results in a recommendation to the government which is not, however, obliged to accept it. In order for the recommendation to take effect, a regulation or decree is required. In the absence of a pay agreement, the government unilaterally sets the rate of adjustment of remuneration. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Factors considered in adjusting pay The traditional reference governing adjustment of pay is the price index forecast. The average public servants’ purchasing power is derived from all the factors involved in the pay progression, i.e. across-the board pay increases, group and individual allowances. Decisions on pay concern almost 5 million employees, of whom 2.4 million work for the State civil service. The level of public service pay also determines the level of the pensions paid to 3.9 million recipients. Macro- economic and “macro-budgetary” constraints play an increasing role in pay policy in the public sector.

Principles for determining individual remuneration The salary scale and the value of the “point” (which is then multiplied by indexes corresponding to each level of the pay scale) are similar in the three public services (State civil service, health service, territorial civil service). The job classification system of all three is co-ordinated to take account of the specifics of each occupation. Pursuant to Article 20 of the Public Servants’ Rights and Obliga- tions Act of 13 July 1983, pay includes salary, residence allowance, family salary supplement and allowances. The basic salary represents on average 80 per cent of total pay. Allowances are designed to take account of the practical conditions surrounding the exercise of duties, which receive no mention in the salary index scale. The list of allowances is as follows: - Civilian staff: Cabinet Office and representation allowances; additional work (hourly and flat-rate allowances); occupational hazard and special hardship allowances; performance and productivity; skills and technical expertise; instructorship and assessment panel service; personal expenditure allowances; job transfer allowances (in certain cases); installation allowance for young employees. - Military personnel (special allowances): military expenses; subsistence. The convention of 9 February 1990 reforming the classification and pay scale introduced a new index-related premium (NBI). It consists in a pay index benefit - the award of extra index points - in recognition of the duties aspect of certain DESCRIPTION OF PAY DETERMINAJION SYSTEMS

posts. Posts qualifying for the NBI must either carry special responsibility or demand the exercise of special technical skills.

Role of central government in setting pay bill volume Determining pay bill volume Growth in pay bill volume resulting solely from across-the board and comparability measures, calculated on the assumption of constant structure and staff strength, i.e. ignoring appointments and departures, is known as “all-in” bill growth. This indicator measures the impact on pay bill volume of collective wage decisions taken by the government. Pay bill volume may also change as a result of variations in employees’ situations. This effect is called the “age-technicity shift” (ATS) and is composed of: - a career effect (positive ATS) reflecting the upward pay bill shift that results from the regular career advancement and promotion of public employees; - a turnstile effect (negative ATS) reflecting the usually downward pay bill shift caused by appointments and departures. The mathematical combination of the two effects produces the “structure” effect (or ATS balance). It provides a means for assessing the development in real terms of the pay bill resulting from variations in the structure of the population concerned. All-in bill growth combined with the career effect enables the trend in average gross earnings of serving staff over a given period to be monitored. Due allowance being made for conceptual diversity, there are three ways of evaluating the average raises received by public servants: From the sole impact of across-the-board and comparability increases. This indicator measures pay trends for public servants on the assumption of zero promotion and advancement. This is the method used for calculat- ing the public service salary index published by the INSEE. It ignores any individual step, grade or sector progression that, automatically or by choice, enters into the career of a public servant; From year-to-year increases in per capita average earnings, calculated by dividing the pay bill by mean staff strength. This method records the effect of the retirement of officials on high pay at the end of their careers, who raise the average, and of the recruitment of beginners on lower pay, who lower the average. This “average earnings” indicator is useful in measuring wage cost per public employee; From the increases in the average earnings of public servants on duty throughout the two years under consideration - known as “serving staff average pay”. This indicator, which takes into account all the factors 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

combining to raise public servants’ pay, assesses the mean impact of the across-the-board, comparability and individual measures benefiting public servants during the period under review.

Deconcentration of management Special appropriations are set aside for making payments in particular situations. This is the purpose of the NBI, an allowance granted to certain staff on the recommendation of their administrations. Proposals are examined by a special board answerable to the Ministry for Public Services. The amount set aside for the NBI for the whole of the public service (excepting France Telecom and the Post) was FF 933 million. The distribution of basic salary and the different grants and allowances in the pay bill is as follows:

Main components of the pay bill in the civil service in 1995

Wages * 82.4 Locality allowances 2.0 Allowances and bonuses 13.4 Family allowances 1.3 Other 0.8 Provisions 0.1 Total 100.0

* Gross wages, i.e. including employees’ contribution to social insurance. Source: Initial Budget Law (voted funds) 1995.

Recent developments in staff management and pay determination The French government’s State reform plan includes experiments in staff management and pay determination. The aim is to develop management and control tools to avoid problems, especially budgetary ones, when the process is implemented generally. The process implemented in France can be viewed as progressive, pragmatic and open to experimentation. These experiments involve methods of delegating responsibilities. For instance, a general budget package, including both quantitative and service quality goals, is being tested in certain government agencies in the form of a three- year contract. The process includes the decentralisation of pay setting by means of individual or team based incentives (individual productivity and performance of agencies). These bonuses differ from allowances, commonly used in the public service to take account of specific conditions in which have to be exercised duties. The government hopes, through these experimental projects, to improve pay determination mechanisms to take performance into account, as part of the LZ!L move towards the greater accountability of heads of service. DESCRIPTION OF PAY DETERMINATION SYSTEMS

The government has also developed a staff management decentralisation plan linked to the pay management plan, which is high on the State reform agenda. Fully decentralised management has already existed for some years now in those ministries most advanced in terms of management and control tools. For instance, primary school teacher promotions are decided at local level and negotiated with the unions. The government hopes to take decentralisation further, but will vary the pace of reform depending on the ministry and the category of staff. The Ministry of Finance introduced a local financial control system as an experiment two years ago which is to be brought into general use in 1997. If objectives are to be achieved, local financial control is vital, but it is not in itself sufficient. An information system is also required to link the central and local levels, this being a vital aspect in the implementation of the government’s policy guidelines on the subject. The decision to delegate the financial system is a key element of the reform, as a staff management decentralisation experiment is unworkable without a system of control.

Public employment by level of government in 1993

~~ ~ ~ ~ Cent ra I government 2 084 294 48.7% Local government 1 339 700 30.7% National Health Services 882 500 20.6% Total 4 279 394 100.0%

GERMANY

Key principles

Institutional framework of the pay determination system The German public sector distinguishes between two categories of employee, both of which are distributed across the Federal Government (about 12 per cent), the Liinder (50 per cent) and the municipalities (38 per cent): - Civil servants (Beamte) whose status is established by law. They have guaranteed employment and retirement; - Personnel without civil servant status - employees (Angestellte) and manual workers (Arbeiter) - whose position is similar to that of private sector employees, and who are entitled to negotiate pay rises. Changes in the pay of employees and manual workers, i.e. the groups working under contract, are negotiated by the partners in the bargaining process - the public employers on the one hand and the worker and employee representatives on the other. The Federal Government (the Cabinet) as such cannot exert any influence whatsoever. As regards civil servants (Beamte), the Federal Government 3 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

adjusts remuneration by law. The rule usually holds that the percentage increase granted to public sector employees and workers is adopted also for civil servants.

Factors considered in adjusting pay The data used for pay negotiations includes in particular the relevant annual opinion of the German Council of Economic Experts appraising overall economic development and the federal Government’s annual economic report based on this opinion. with a view to the economy as a whole, the intention is to prevent the public service from taking the lead in pay development, whereas the public service must be in line with the general economic trends so as to maintain necessary integrity and effectiveness. However, there is no fixed mechanism or defined weighting of individual aspects. It is therefore necessary to make a new assessment and decision every year. The date on which pay adjustments enter into force for civil servants may differ from that decided upon for public sector employees and workers, within the limits allowed by the law. Adjustments are valid for all male and female civil servants employed in the civil service of the Federal Republic of Germany. Mention should be made, however, of the different basic salary rates for the new Under. The public sector pay level for East Germany for the time being amounts to 84 per cent of that in West Germany.

Principles for determining individual remuneration In most cases, civil servants’ pay is made up of: - Basic salary (70-90 per cent of total pay). - A “cost of living” allowance, commensurate with salary and depending on family status. It ranges from 10 per cent of total pay in the case of the top salaries to 30 per cent in the case of the lowest salaries. - A “general” allowance, whose amount varies according to grade. It may not exceed 6 per cent of total pay. - Special allowances attached to certain duties (senior Federal Ministry officials, police officers, etc.). - A holiday payment and a “thirteenth month” are included in total pay. Employees without civil servant status benefit from the same conditions as civil servants. The system is slightly different in the case of workers, since their basic salary incorporates a portion of the cost of living and general allowances. In the case of civil servants, salary scale advancement is tied to seniority. It takes LZ& place automatically every two years. In the case of non-civil servants, it is tied to DESCRIPTION OF PAY DE JERMINATION SYS JEMS age but not to seniority. The terms of promotion for fulfilment of duties are set out in the collective agreements.

Role of the Federal Government in setting pay bill volume

Pay bill and compensation cost volume are set at central government level. As regards civil servants, the salary increases for each Ministry are entered in the budget. In the case of contract employees, employers are required to finance the increases decided upon in the collective agreements. Before bargaining begins, employers estimate the impact of the increases on the national budget and set a maximum rate of increase which they may not exceed for financial reasons.

Recent trends in staffmanagement and pay determination

The government’s current reform plans are aimed primarily at making the public service more efficient and effective. The government’s sphere of action would be limited to essential functions (the concept of “lean government”). The “Act on the Reform of Public Service Law” was promulgated on 28 February 1997”. More weight is now given to the idea of performance and merit in the law governing the civil service. In addition, more mobility is required so that best possible use can be made of the personnel resources of public service in the event of reduction and shifting of staff. with regard to pay, too, more emphasis was put on the idea of direct merit. The basic pay rates were restructured, provisions on pay scales and promotion straightened and made contingent on technical merit. In addition to these performance oriented elements in basic pay, excellent performance of individual civil servant is to be rewarded in the form of efficiency bonuses or allowances. While the efficiency bonus is paid for specific achievements in the past, allowances are meant to be an incentive for positive performance in the future. It is intended to apply this system also to employees and workers (those without civil servant status) in the public service, but this still has be negotiated in detail with the trade unions.

Public employment by level of government in 1995

Federal government 546 300 11.5% Lander 2 449 700 51.7% Municipalities 1 740 800 36.8% Total 4 736 800 100.0% 57 I TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

IRELAND

Key principles

Institutional framework of the pay determination system General pay increases are centrally negotiated between the government and unions for the seven main sectors of the public service (civil service, police, health, education, defence, non-commercial state-sponsored bodies, local government). Possibilities exist for negotiating specific increases for particular groups or grades through special conciliation or arbitration machinery. Arrangements vary among different parts of the public service for these special pay claims. Arbitra- tion is the general rule, and the government may set aside or modify an arbitration only by vote of Parliament. Responsibility for negotiating the pay of employees of local authorities or the health services is assigned to the Ministers for the Environment and for Health. Manual workers and certain groups in the health services negotiate directly with the Labour Court. For health and local authority services, arbitrations are not binding on either side but are usually accepted. The pay and conditions of higher public servants are determined by Review Bodies. Pay bargaining in both the private and public sectors has been conducted centrally since 1987. Three national agreements on pay were negotiated directly between the national employers and the Irish Congress of the Trade Unions, as part of the following national programmes for social and economic development: - The Programme for National Recovery, covering the period 1988-1990; - The Programme for Economic and Social Progress, covering the period 199 1 - 1993; - The Programme for Competitiveness and Work, covering the period 1994- 1996.

Factors considered in adjusting pay The major factors considered in determining pay increases during the implementation of the national programmes are the competitiveness requirements of the economy, the state of Exchequer finances including the prospects for trade-off between budgetary concessions on personal taxation and the level of pay settlements, growth prospects and the projected rate of inflation. Agreements are valid for three years (see above). The duration of the Programme for Competitiveness and Work launched in January 1994 has been extended for six months and a five- L!!% month pause was agreed upon before the first increase of 2 per cent in 1994 was DESCRIPTION OF PAY DETERMINATION SYSTEMS

paid. The timing of payments under the public service agreement is expected to have the following effects: - The cost in each of the three years of the national agreement will be roughly the same in the private and public sectors; - The overall payroll rise in the period of the national programme will be about 7.5 per cent in both sectors; - There will be an additional public service cost in 1997, but this will be covered by the agreed extension of the duration of the public service pay agreement by six months to 30 Iune 1997.

Principles for determining individual remuneration Public servants are paid according to a salary scale. Different scales and job classification systems apply to the different groups (civil service, police, teachers, etc.). Basic salary in most cases represents 100 per cent of total pay. Allowances for the performance of higher duties are occasionally paid if these duties are to be performed on a prolonged basis. Advancement by seniority is generally yearly, providing the employee’s service has been fully satisfactory. Promotions are by seniority or competition. Civil service section heads are eligible for performance

Pay * Under a pay agreement concluded in 1995 with executive grades in the civil service under the local bargaining clause of the current national programme, a proportion of staff (25-30 per cent) in the grades concerned may, on a personal basis, be assigned to a scale which is higher than the standard scale for the grade. Three agreements have been reached under this local bargaining provision: with executive grades in the civil service, with officers in the Defence Forces and with police officers. Negotiations are continuing with other groups across the public service. They have reached an advanced stage with clerical grades in the civil service, teachers and nurses.

Role of central government in setting pay bill volume The central government sets pay bill volume Pay bill and compensation cost volume is set by the government each year on the basis of the previous year’s out-turn, adjusted by the following: - the cost of across-the-board pay increases; - the cost of local bargaining pay increases; - the cost of changes in numbers (up or down); - incremental costs due to movements on salary scales; 591 TRENDS IN PUBLlC SECTOR PAY IN OECD COUNTRIES

- adjustments due to technical factors, such as additional pay days falling in a particular calendar year, or occasional reclassification of elements of pay expenditure.

Financial constraints imposed by the central government on agencies or departments The civil service is made up of sixteen government departments and some twenty-four offices/agencies. By definition, their share of total employment in the civil service is 100 per cent. It is broken down as follows:

N on-i ndust rial civi I servants 29 491 Industrial civil servants 1 760 Total 31 251 i.e. for 1995 As a percentage of total central level employment 16.8% As a percentage of total public employment (central level plus local government) 13.5%

There are numerous other non-commercial public service agencies, not classified as part of the civil service, which employ approximately 8 500 persons. The sixteen government departments and eight other offices/agencies participate in the “Administrative Budget Initiative” (that is to say, they administer a global operating budget, inclusive of personnel costs, intended to meet all running costs). The other sixteen offices/agencies are not for the time being party to this initiative. The administrative budget, as published, is disaggregated into a range of standard headings, such as: - pay and remuneration (including overtime); - travel and subsistence; - incidentals (training, advertising, entertainment, etc.); - postage and telecommunications costs; - office machinery and supplies; - office premises expenses; - consultancy services. Agencies and departments are entitled to switch resources from one category to another within the administrative budget up to a ceiling of 25 per cent of the published allocation for that category (see headings above). Transfers above that level may be authorised by the Department of Finance. On the other hand, no E authority is delegated to overrun an allocation in one year in exchange for an DESCRIPTION OF PAY DETERMINATION SYST€MS

offsetting reduction in the following year. The Department of Finance would, however, be prepared to consider a specific request on its merits. It is not possible to carry forward unspent allocations to the following year. Control over senior administrative grades has never been delegated by the Department of Finance. Under the Administrative Budget Initiative, control over numbers in lower administrative and clerical grades was delegated to the participating departments and agencies, but not to non-participating agencies. This delegated control was revoked in mid- 1995 owing to a disproportionate increase in the size of the Irish Civil Service. Control over numbers has now been recentral- ised in the Department of Finance.

Determining the volume of the running costs budget of departments and agencies The volume of the running costs budget attributed to each department or agency is determined by: - The budget of the previous year, adjusted for any factors specific to that year. - General pay increases, and increases in the rates of travel and subsistence allowances, agreed at central level. - Planned productivity gains. Most of the departments and agencies party to the Administrative Budget Initiative are required to yield an efficiency dividend of 2 per cent on their core annual allocation as a condition for the adjustments mentioned in the previous indent. - Changes in numbers would be financed only where an increase had been authorised by the Department of Finance (e.g. for a new or expanded service). Annual negotiations are conducted between the Department of Finance and agencies and departments at which some increases (e.g for special consultancy projects, information technology investment or new or expanded activities) in the running costs budget may be conceded. The Department of Finance has the final decision, unless the government intervenes subsequently to demand a reduction or an increase.

Role of central government in co-ordinating pay-setting at the decentralised level The Programme for Competitiveness and Work provides for local bargaining within financial constraints. In most areas of the public service, the relevant 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

central government department is directly involved in negotiations via representation in the conciliation and arbitration processes. The Department of Finance is also represented in some of these schemes, to ensure that settlements fall within pay policy guidelines. Guidelines for local bargaining discussions are set in the pay agreement which forms part of the national programme. The government and the Minister for Finance issue occasional statements regarding pay policy. The outcomes of decentralised negotiations are monitored by the Depart- ment of Finance to ensure that they lie within the limits fixed by the pay agreement. Individual departments monitor developments in their own areas of responsibility.

Decentralisation of pay determination Certain public servants who meet particular requirements receive personal allowances payable at local level. The global aggregate of personnel expenditure does not, however, distinguish between the amount represented by basic salaries and that represented by allowances.

Other significant developments in public sector pay or related areas

A revised scheme of arbitration and conciliation was introduced for the civil service in 1994 following negotiations with the unions concerned. The new features include a three-person arbitration board, an adjudicator for small claims, agreed criteria to be taken into account at each stage of the negotiation process and special provisions concerning industrial action, including arrangements for minimum services where such action could have serious or adverse consequences for the community. In the past, certain higher civil service grades were covered by a separate conciliation and arbitration system. They are now integrated into the amended arbitration and conciliation scheme. Accordingly, there will be no separate scheme for higher staff in future. Discussions, based on the civil service model, on the revision of conciliation and arbitration schemes in other areas of the public service are continuing.

Public employment by level of government in 1995

Central administration 186 332 87.3% Local authorities 27 200 12.7% Total 213 532 100.0% 62 DESCRIPTION OF PAY DETERMINATION SYSTEMS

ITALY

Key principles

Institutional framework of the pay determination system in both the public and private sectors, pay policy is governed by the “Proto- col on incomes and employment, contractual arrangements, labour policy and industrial support policy” of July 1993 concluded between the government and the social partners (employers’ and employees’ confederations). This agreement, like that of 31 July 1992 which signalled the final abandonment of the wage indexation system, determines the framework of contractual relations in accordance with the following general principles: - Conclusion of national collective agreements by category (CCNLs),valid for four years as regards their legal content and for two years as regards their economic provisions; - Institution of an interim pay clause, i.e. an allowance to cover absence of negotiation, adjusted for predicted inflation and payable by the employer beginning three months after the expiry of the CCNL if this has not been renewed; - The practical economic impact of the CCNL should be compatible with predicted inflation. When the economic provisions of the CCNL are reviewed every two years, the ensuing negotiations must take account of differences between real and predicted inflation over the previous two years, exchange rate fluctuations and pay trends. In 1993, the reform of the “Public Contract” covering most public sector employees postulated the privatisation of labour contracts, by requiring employees progressively to switch from a system of public law to a system of private law contracts. Collective bargaining, as it concerned the legal and economic treatment of employees covered by collective bargaining, would henceforth be conducted between the Public Administration Negotiating Agency (Agenzia per la Rappresentanza Negoziale delle Pubbliche Adrninistrazioni - ARAN) and the most representative employee organisations. Bargaining is conducted in each of the eight sectors designated in 1983: - ministries (except education and health); - autonomous public administrations; - non-economic public bodies; - search bodies; - national health service; - schools; TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

- universities; - regional and local administrations. Within these sectors, certain occupations (doctors in the health sector, tech- nicians and researchers in the research sector) conduct separate sets of negotiations. There are other categories which have kept their public labour contract and their particular pay determination schemes. They are i) the armed forces and militarily-organised police, whose system is controlled by official regulation; ii) the civilly-organised police, for whom agreements are concluded directly between the government and the unions; iii) executive-grade State civil servants, diplomatic and prefectoral staff, university teachers and magistrates, who receive an automatic annual adjustment (triennial in the case of magistrates) based pro- portionally on the average increases granted to contract employees during the preceding year.

Factors considered in adjusting pay Automatic wage indexation was abandoned in 1993 and the emphasis was shifted to control of personnel costs by the Ministry of Finance. Under the biennial negotiations system, delay in the renewal of a collective agreement triggers an automatic indexation based on predicted inflation. After a three-month delay, an increase equal to 3 per cent of the predicted inflation rate is applied to basic salary; it may rise as high as 50 per cent of predicted inflation if the delay lasts more than six months.

Principles for determining individual remuneration A single job classification system applies to the eight aforementioned sectors. All staff covered by the collective bargaining scheme are classified into eight major job profile categories according to job content and degree of responsibility. Individual pay structure has changed along with the gradual abandonment of a number of automatic pay mechanisms, such as indexation or pay increases based on seniority. The tendency is towards a more flexible structure under which more room is allowed for pay related to productivity. A distinction may be drawn between: a) items of fixed salary: - basic salary, depending on grade and step; - special supplementary allowance; since 1991, this allowance is no longer considered as a form of wage indexation offsetting losses in purchasing power; - the share of seniority increases granted under the former system; - fixed proportion allowances specific to each department or sector. DESCRIPTION OF PAY DETERMlNATlON SYSTEMS

6) ancillary items: - individual productivity bonus (restricted to a few specified staff designated by the CCNL); - collective productivity bonus (more widespread than the foregoing, paid at the completion of certain projects specified during decentralised bargaining); - allowances for special services; - overtime. Staff not covered by collective bargaining receive an automatic seniority increase every two years in addition to basic salary adjustments.

Role of central government in setting pay bill volume Determining pay bill volume The government sets pay bill volume via the Budget Act (legge di Gilancio). The amount of resources set aside for funding salary increases is stipulated in the Finance Act (legge finanziaru). Pay bill volume is determined: a) ex ante, depending on: - pay bill volume for the previous year; - staff reorganisation schemes (e.g. freeze on turnover, mobility, workload-based manning); - the need to reconcile resources available for salary increases with the public deficit reduction programme; 6) by certain ex post adjustments, which depend on: - pay increases for contract staff, but only in the case of automatic adjustments; - changes in staff strength; - differences between estimated and actual expenditure, with a freeze on contractual advantages if actual expenditure overruns initial expenditure estimates; - actual inflation where it differs from the predicted rate of inflation.

Role of central government in the collective bargaining process Collective bargaining is conducted between the AWN, representing the government as employer, and the unions, representing the employees (see above). The government lays down the main guidelines for the renewal of agreements, 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

the amount of resources available and criteria for apportioning these among sectors. The Public Audit Office carries out a prior analysis of apportionable resources.

Decentralisation of pay determination Decentralisation of determination of items of pay is restricted by the principles contained in the CCNLs. For each of the eight functional sectors, these lay down, on the one hand, the terms of the labour contract (employees’ rights and obligations, staff holidays, working hours, sickness leave, disciplinary measures, grounds for terminating contract, etc.) and, on the other hand, certain terms of pay (amount of fixed regular pay, additional pay). The central bargaining level determines also what subjects may be negotiated at decentralised level and the terms of such negotiations. On matters of both labour law and finance, decentralised bargaining must stay within the limits fixed by the CCNL. Neither working hours, for example, nor the allocation of funds for staff bonuses may be modified at local level. One major constraint weighing on local governments is the ban on assuming financial commitments in excess of what the resources allocated under the national negotiations enable them to bear.

Public employment by functional sub-sectors in 1995*

Mini st ries 279 700 10.1% Autonomous public adm i n ist rat ion 39 700 1.4% Non economic public bodies 65 700 2.4% Search bodies 15 700 0.6% National health service 673 300 24.2% School 970 900 34.9% University 103 300 3.7% Regional and local administration 634 200 22.7% Total 2 782 500 100.0%

* Public employment covered by the “Legge quadro”. Police (320 521) and Magistrats (9 738) are not included

NETHERLANDS

Key principles Institutional framework of the pay determination system Until 1993, wage bargaining was centralised. Since then, it has continued to be conducted at central level but has been organised separately for each of the b!& eight major public service sub-sectors (Ministries, education, police, defence, DESCRIPTION OF PAY DETERMINATION SYSTEMS judiciary, provinces, municipalities, Polder Boards). Pension scheme and social security arrangements are centrally negotiated for the whole of the public service, the Ministry of the Interior acting as employer’s representative. Other matters, such as wages and conditions, are negotiated in each of the eight sub-sectors. However the situation is different in the eight subsectors. Municipalities, provinces and Polder Boards have their own budgets and decide how much they want to spend on wage increases. The situation is less decentralised in the five government sectors (ministries, education, police, defence, judiciary). Central government sets the budget volume which the Ministry of Finance allocates to the five sectors. Each sector then decides how much of its budget it wants to allocate to pay increases and it can use a part of the budget for its own needs (productivity, other income, budget cuts). Consequently, pay increases can differ from one sector to another, albeit respecting the strictly formulated budgetary constraints.

Factors considered in adjusting pay Pay is adjusted according to the general economic situation and the state of public finances. Increasing attention is being paid to private sector pay increases. Negotiations are conducted every one or every two years, according to functional sub-sector. The following lists the outcomes of agreements concluded in 1996 (on year basis):

1.8% Education 4.4% Ministries 0.6% Police 0.9% Defence 1 .O% Judiciary 0.6% Municipalities 1.3% Provinces 1 .O% Polder Boards 2.5%

Principles for determining individual remuneration Each functional sub-sector has its own salary scales and job classification system. Basic salary represents from 93 to 100 per cent of total pay according to post, and includes a holiday allowance. Officials in the Ministries, judiciary and education receive an allowance intended to offset in part their contributions to the private health insurance scheme. Bonuses applicable to all staff are under consideration to reward individual performance and to be used in cases where recruitment for certain occupations is difficult. Pay increases and promotions based on seniority are annual in principle but depend on personal rating. 671 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Role of central government in setting pay bill volume

In the ministries Cabinet fixes the size of the budget before the start of negotiations in the eight functional sub-sectors. This amount is based essentially on pay increases in the private sector, the general economic situation and the state of public finances. Agreements concluded by the Ministries, education, the police, defence and the judiciary are submitted to the Cabinet for approval. On the other hand, the municipalities, provinces and Polder Boards are independent as regards the content of pay agreements. The Ministry of the Interior co-ordinates the terms of employment in the eight sub-sectors and monitors the results of negotiations. It may also arbitrate in the event of failure to reach an agreement in one of the sub- sectors. In the case of the Ministries, personnel expenditure and other operating costs are charged to different parts of the budget. Under the “coalition” agreement signed in August 1994 - which provided for a 2.5 per cent reduction in the pay bill - spending cuts were made in order to improve service efficiency. The personnel budget has also been affected by special programmes for hiring unemployed persons. The pay bill is adjusted according to the outcome of collective bargaining on pay and terms of employment. The pay bill also reflects individual pay increases. In the event that the budget initially allocated by the Ministry of Finance is overrun, personnel expenditures may be funded from the budget for other operating costs. An overrun of 1 per cent of the overall annual budget is authorised.

In agencies

In 199 1, the government decided to relax the general rules governing finance and personnel management by introducing a new type of government body with more independent management powers. There are to date fifteen agencies of this type operating within the civil service (accounting for 2.5 per cent of civil service employment). The distinguishing feature of these agencies is the opportunity open to them of using business accounting procedures. They are required to account explicitly for the level of production achieved. This implies that their production must be measurable. Agencies are empowered to transfer resources earmarked for personnel costs to other heads of expenditure and vice versa. They are, however, bound under the “coalition” agreement to reduce their pay bill by 2.5 per cent. Most agencies have adopted a receiptdexpenditure system. They may post a deficit over one or two years, but must in the long run present balanced accounts. DESCRIPTION OF PAY DETERMINATION SYSTEMS

Further information The State Employees’ Pension Scheme was privatised at 1 January 1996. As from 1 January 1998, civil servants will have the same social security as private sector employees.

Public employment by functional sub-sectors in 1995

~~ Education 304 625 42.7% Police 42 238 5.9% Defence 74 625 10.5% Judiciary 2 034 0.3% Polders Boards 8 051 1.1% Ministries 98 370 13.8% Municipalities 154 214 2 1.6% Provinces 11 143 I .6% Intercommunal associations 18 143 2.5% Total 713 443 100.0%

NEW ZEALAND

Key principles Institutional framework of the pay determination system New Zealand’s public service underwent major changes from the mid 1980s. The first changes involved the separation of commercial and non-commercial government activities and the creation of State Owned Enterprises (SOEs). After ten years of intensive reforms, the state sector consists of: - a core public service made up of various ministries; - a variety of State Owned Enterprises and Crown companies; - a different structure for the health and education sectors: the health sector is now made up of four regional authorities, each acting as a buyer of health services on behalf of the government. Former hospitals were converted into Crown Health Enterprises in order to compete with other health services providers; within the education sector, individual boards of “Trustees” are now responsible for managing schools and directly employ the teachers and other staff who work there; - more than four hundred Crown Entities. The process of reforming the State has taken various forms. Reforms of employment practices and pay determination have been important elements in the overall strategy aimed at reforming public service management. The A!? TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Department’s chief executives are responsible for the budget and the workforce. A new government financial management system provides for the same accounting principles currently used in the private sector, i.e. full accrual and balance sheet accounting and specification of outputs (showing the goods and services departments produce) and performance measures. Considerable progress has been made in the traditional approaches to human resources management, notably since the 199 1 Employment Contract Acts entered into force. Before these reforms, pay determination systems were com- pletely centralised and rigorously controlled by the major union within the Public Service, and the State Services Commission. This radical shift from a centralised civil service to a highly decentralised civil service has had a profound effect on industrial relations. Service-wide bargaining ended and individual department’s chief executives have become individual employers. At the same time, their status has changed - they have been placed on fixed-term contracts. They carry out important functions, in particular in respect to the determination of pay in departments, under delegated authority from the State Services Commissioner, who continues to have legal responsibility for conditions of employment and who sets and monitors bargaining guidelines. The State Service Commission thereby officially remains in control of salary levels. Before 1991, union membership was not compulsory in most private and state sectors. With the new rules governing employment contracts, the working conditions of each employee are set out in the employment contract, either on a collective or an individual basis. These rules apply equally to the public and private sectors. They allow employees to choose their “bargaining agent”, and, following agreement with their employer, negotiate either individually or collectively with their employer.

Factors considered in adjusting pay

Pay increases take into account the budget situation and government objectives. Also considered are: labour market pressures, difficulties in recruiting and retaining personnel for certain jobs, and practices in the private sector. There are no official studies comparing pay for the public and private sectors, but public service employers can use private sector salaries as a point of reference for specific occupational groups.

Principles for determining individual remuneration Managers can appoint staff at any position within a salary scale which seems & appropriate to their market worth or perceived value to the organisation. As an DESCRIPTION OF PAY DETERMINATION SYSTEMS example, one department’s collective agreement sets the following pay guidelines: - Four broad, overlapping salary bands with designated categories of position in each band. - Movement between bands takes place by appointment to an established position. - Movement within a band is decided by management, based on the job holder’s: a) skills and experience; 6) achievements against an annual performance agreement; c) contribution to the aims and objectives of the Ministry and the work unit. The criteria are determined according to how easy (or difficult) it is to recruit and retain individuals with the skills required for the position. - Salaries below a certain threshold (very few employees, in fact) are automatically increased. These increases are provided for by a special fund. - Salaries are reviewed at least once a year. They can remain unchanged or be increased by a fixed amount. The health and education sectors overall are not covered by a national collective agreement (but groups within them are). Remuneration of departmental chief executives must be determined in agreement with the government.

Role of the government in setting pay bill volume Factors taken into account in determining the running costs budget Budget policy is a key factor in the implementation of the new pay determination system. This policy is based on the 1994 Fiscal Responsibility Act and establishes the principle that each department is responsible for managing its own budget. The Treasury must publish a Budget Policy Statement no later than three months before the start of each fiscal year. This document sets out the government’s main priorities for the coming year, and for the two years thereafter. At the same time, a report on budgetary strategy is published, with the view to ensure compatibility between the State’s budget and the Budget Policy State- ment. A running costs budget, which does not separate compensation costs from other operating costs, is allocated to each department. The size of these budgets is set on the basis of each department’s expected results.

Government financial constraints on departments Departments have to achieve certain “bargaining round parameters” set by the government. For the 1994/95 fiscal year, departments were required not to incur any extra fiscal costs and not to make adverse settlements. m TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Performance-based remuneration In principle, performance-based remuneration has been applied since 1988 to all departments and agency employees. Agencies can define their own systems. Agreements regarding the performance of chief executive and senior management staff have also been in place since 1988.

Civil Service employment by level of government in 1995

Central Government 185 500 89.7% Local Government 21 300 10.3% Total 206 800 100.0%

SPAIN Key principles Institutional framework of the pay determination system Centralised negotiations determine civil servants’ pay, (barring that of senior civil servants). The remuneration of contractual employees is negotiated by each ministry or department within the central administration. Autonomous communities and local authorities use pay systems very similar to that used at the central level. They are, however, free to determine their employees’ pay within the limits set by law. Within certain sectors, such as teaching, pay can differ between the regions in charge of managing these sectors. It should be noted that the breakdown of the public sector employment has changed markedly as a result of the decentralisation process. This was the aim of the 1978 constitution, which led to the creation of autonomous communities. As a result, a large number of State employees have already been transferred to autonomous communities. This process has not, however, been completed. At completion, decentralised services should have twice as many employees as the central level.

Factors considered in adjusting pay Pay adjustments are made using the predicted increase in the consumer price index as basis. An automatic, retroactive adjustment is commonly made at the end of the year if real inflation has exceeded predicted inflation. However, the wage-restraint measures introduced in 1992 have led the government to freeze public service pay and to offer pay adjustments that do not cover all of the increase in purchasing power. For some occupations (e.g. information technology) information is gained through comparisons with the private sector. Negotiations generally take place annually. DESCRIPTION OF PAY DETERMINATION SYSTEMS

Principles for determining individual remuneration

The same job classification system and pay scale are used for all civil servants. For contractual employees and manual labourers, scales are decided on within each department. There is some flexibility in determining individual pay. Basic salary is determined by a grade scale consisting of five major groups. Each group corresponds to a qualification level. Assignment to one of these five groups determines: - basic salary; - the seniority allowance, which increases automatically every three years; - double pay, twice a year, including both the basic salary and the seniority allowance. The basic salary is supplemented by post-specific pay elements. Posts are classified into thirty levels. The five major groups corresponding to qualification level make up the minima and maxima threshold levels. It is clear that adjacent groups can overlap:

Correspondence between qualification group and post level

Classification according to Post level (additional Hierarchical scale qualification allocations)

Group A Post-graduate university maximum level 30 to 30 degree minimum level 20 29 28 27 Group B University degree maximum level 26 to 26 minimum level 16 25 24 23 Group C High school certificate maximum level 22 to 22 (Baccalaurgat) or minimum level 11 21 equivalent 20 19 Group D Primary schooling or maximum level 18 to 18 equivalent minimum level 9 17 16 15 Group E Schooling certificate maximum level 14 to 14 minimum level 7 13 12 11 10 9 8

7 73 I TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

The post’s position on the hierarchical scale determines the payment of: - An assignment supplement related to the level of the post held. This supplement is based on the assumption that the job content has been evaluated. The size of the supplement is the same for all the public service, including autonomous communities and municipalities; - A specific supplement as a reward for working conditions, specific technical difficulties, and the level of responsibility of each post. A job evaluation system enables jobs to be rated and given a certain number of points. This allows for comparisons within the public sector and even with the private sector. The total volume of specific supplements is not set by law, but determined at the same time as the “Report on Jobs”,after evaluation of the operational content of each job. This specific supplement allows considerable flexibility and for many civil servants, this specific supplement accounts for a significant part of their total pay. Supplements range from 15 per cent of total pay for mid-level managerial staff to 50 per cent of total pay for senior managerial staff. A productivity bonus is paid on an individual basis by each department. The Finance Ministry sets the amount of the overall credit, as well as general criteria for its application. This supplement is meant to reward an employee’s individual performance and therefore act as motivating factor. A transitory personnel supplement is planned to compensate for any financial losses due to the implementation of the new pay system. Finally, civil servants occupying posts in certain areas, notably the islands, receive a housing allowance.

Role of the government in setting pay bill volume

Factors taken into account in determining the amount of the pay bill The Budget Act provides for an annual increase in the public service pay bill volume based on several well-defined factors: - The predicted increase in the consumer price index. - Staff changes (taking into account the number of personnel leaving, as well as new staff recruited). - Seniority increases. - Increases resulting from the re-evaluation of certain jobs (the impact of this factor is limited because it applies to only a small number of employees). - Making up for the loss in purchasing power of civil servants’ pay. As a result of the September 1994 agreement between the administration and the unions, additional funds can be obtained for this purpose. DESCRIPTION OF PAY DETERMINATION SYSTEMS

- The result of collective bargaining regarding contractual employees. The Budget Act fixes the maximum increase in the pay bill for these employees. In addition, separate negotiations take place for the sixty groups existing within the public service. The increases thus agreed to are usually slightly higher than those set out in the Budget Act. - The size of the productivity bonuses is set by the Finance Ministry for each ministry and autonomous body.

Central government control of pay bill increases Public service spending on personnel is closely monitored by the Finance Ministry. Compensation costs charged to the budget are carefully reviewed, as are modifications to the budget. Any personnel-related measures that lead to an increase in spending require authorisation from the Finance Ministry. Proposals for new hiring within the ministries are also monitored. The Interministerial Remu- neration Commission is responsible for co-ordinating the “Report on Jobs”. Pay increases of the personnel of the armed services, the police, the Civil Guard (Guardia Civil) and social security health-care personnel are initiated by an application for approval, drawn up by the relevant ministry. Finally, the part of the pay bill subject to negotiation requires authorisation from the Finance Ministry prior to the start of negotiations. The Finance Ministry also has a role to play in the collective bargaining process. Collective bargaining is organised according to the “Negotiating Frame- work” (general, sectoral and decentralised frameworks) which determines the level of participation of the Finance Ministry in the process of setting working condition and pay.

Composition of the pay bill Different components of the pay bill are allotted to separate budget items. Funds may not be transferred from one item to another. In 1995, the pay bill of the civil service, postal services, social security and teaching staff was broken down as follows:

Salary and double pay 52.9% Seniority 7.8% Assignment Supplement 19.2% Specific Supplement 12.2% Productivity Bonus 4.3% Other Supplements 3.6% Total 100.0% 751 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Scope for flexibility at the decentralised level

The productivity bonus is the only pay component distributed at the decentralised level by the ministries or departments. In 1995, this represented 7.2 per cent of the average earnings, but only 4.3 per cent of the pay bill volume.

Civil Service employment by level of government in 1995

Central Government 935 900 47.2% Autonomous Communities 620 500 31.3% Local Government 425 200 2 1.5% Total I 981 600 100.0%

SWEDEN

Key principles

Institutional framework of the pay determination system Civil service pay is negotiated on two levels. Centralised negotiations take place between the Swedish Agency for Government Employers (AgV) and the three unions representing employees. Frame agreements are centrally negotiated and deal with issues of working conditions and salaries. A second level of negotiations take place between management and employee representatives within each agency that is a member of AgV. These agreements deal mainly with fixing individual pay, but also increasingly involve issues such as working conditions and working hours.

The Swedish Agency for Government Employers Central government agencies, as well as a few agencies that are not part of the central government, but closely linked to it, make up the membership of AgV. More than two hundred central government agencies are members of AgV. Some of these agencies operate on the regional level, or even the local level. Thus, Inland Revenue consists of the national tax office, the regional tax authorities and local tax offices. More than 400 central government agencies operate on the regional level. The central government is represented in more than 4 000 sites throughout Sweden, including local offices and other geographical subdivisions. A total of 270 000 employees are employed by AgV members. AgV members that are not part of the central government include social insurance offices, Church of Sweden, several museums, and twenty or so other employers with a combined total of 25 000 employees. DESCRIPTION OF PAY DETERMINATION SYSTEMS

Members of the AgV: activities and number of employees, 1995

Special Commission Agencies 14 500 Public Utilities and Infrastructure 38 000 Working Life, Care and Education 23 500 Economy 20 500 Social Insurance Offices 17 500 Swedish Armed Forces 34 000 Cu 1t ure 4 000 The Church of Sweden 3 500 County Administrative Boards, Ministries, and Staff Agencies 12 000 Environment, Technology, and Agriculture 7 000 Legal System 44 500 Universities and Research 51 000 Total 270 000

Source: Swedish Agency for Government Employers

The central government is in charge of all the activities listed above. The health and transport sectors fall within the authority of the counties, while local authorities are in charge of social services, primary teaching and public utilities (water, electricity and waste removal).

Factors considered in adjusting pay Public sector pay adjustments are made on the basis of private sector pay, without any formal comparisons being made. Pay negotiations usually take place once a year, but can be extended to two or three years.

Principles for determining individual remuneration Individual pay is determined in the same way as in the private sector. Salary scales are no longer used - except for 20 000 central level employees, who are still paid according to pay scales. The use of a job classification system (the TNS- system), which rates jobs using a number of criteria, enables the government to apply individual and differentiated pay. The TNS-system consists of 8 1 families of occupations. Each family has a maximum of five levels (originally seven), characterising the degree of difficulty. The concept of difficulty should be broadly interpreted, and includes such features of the job as responsibility, autonomy and complexity.

Role of the government in setting pay bill volume The management of all operating costs is decentralised to the agency level (see below). No distinction is made between compensation costs and other a TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

operating costs. The previous year’s pay bill volume is, however, taken into account by the central government when determining running costs budgets, even if no distinction is made between the different types of costs. The central government also has no control over the size of the workforce.

Determining the size of each agency’s running costs budget Up until the early 1990’s, all increases in agency spending were almost automatically financed by the central government. The financing of across-the- board pay increases by the central government, in particular, had a negative effect on wage formation. A large pay increase would make the agency’s pay levels more competitive, while the financing of this increase was guaranteed. Cash limits were introduced in 1993. The budget allocation is determined in advance for the period in question. Agencies now receive a frame grant, with no restrictions on the use of funds, whereas under the old system, various items of budgetary expenses were specified. In order to counterbalance price increases, the budget package is adjusted according to an index calculated by the Finance Ministry. It consists of different sub-indexes for different items. Compensation cost increases are determined using a ratio based on the increase in compensation costs in the private sector. This is an important point, since the government can no longer select their own price-adjustment index, but must tie their index to salary and price increases throughout the rest of the economy. The final decision regarding an increase is not, however, always taken in accordance with the index. The size of the grant may be increased or decreased, in line with policy priorities and to increase efficiency. In order to provide for unexpected changes in its running costs budget, an agency can save part of its budget for use in the following financial year. It can also make use of a credit of up to 5 per cent of its allocated grant. As a result of this reform, government employers now have the same incentives as other employers to limit the pay increases granted by central agreements. The government and Parliament need no longer monitor the content of these central agreements with a view to balancing the budget, since central government expenditures are already fixed. As a result, there is no longer any need for parliamentary approval of central agreements.

Role of the central government in collective bargaining on pay Centralised collective bargaining culminates in the signing of frame agreements. These agreements deal, not with increases in rates of pay, but with “pay kitties”, which give the sum of pay increases to be distributed among employees. The value of these “kitties” is expressed as a percentage of actual pay. It is DESCRIPTION OF PAY DETERMINATION SYSTEMS calculated on the basis of average pay, but can also depend on pay distribution with respect to low pay and the employment categories. Typically, an employee earning less than the average pay contributes more to the “kitty” in percentage terms. The distribution of the “kitty” among an agency’s employees is determined by collective bargaining in the workplace. It is also sometimes left to the employer’s discretion. The only rule laid down by the central agreement is that minimum pay increases must be guaranteed, but even this often only applies if the local parties did not come to a different agreement. The main characteristic of this system is the high degree of co-ordination between employee and employer representatives. The level of co-ordination has, however, decreased markedly over the last ten years. This has recently forced employers to foot the bill for an increasing amount of pay drift over and above increases covered by funds allocated by the central government.

Frame Agreement of 19 December 1995 between AgV and the three trade unions

Total increase of about 9.7 per cent over a 33 month period from 1 July 1995 to 31 March 1998 Timetable for increases Profile

I st phase 1 July 1995: general increase of 1.8 per cent, No pay kitty to be distributed or a minimum of 300 SEK per full-time employee per month. 2nd phase 1 January 1996: allocation of a pay kitty No guarantee of individual increase, unless local amounting to 4 per cent of actual pay parties cannot reach an agreement. In this event, in effect at 31 December 1995. a minimum increase of 275 SEK per month is guaranteed. 3rd phase 1 lanuary 1997: allocation of a pay kitty Minimum individual increase of 300 SEK per amounting to 3.4 per cent of actual pay in full-time employee per month, unless otherwise effect at 31 December 1996, or a minimum agreed by the parties. If the parties cannot agree of 500 SEK per full-time employee per month, on the distribution of the kitty, they can call the remainder to be distributed freely in a mediator. among the employees.

Civil Service employment by level of government in 1995

Central Government 233 700 18.5% Regional Administration 274 620 2 1.7% Local Government 757 160 59.8% Total I 265 480 100.0% TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

SWITZERLAND3 Key principles Institutional framework of the pay determination system The Confederation, the cantons and the communes all have their own pay system. At the confederate level, public service (including administrative services, Post and Telecommunications, Swiss National Railways, research and education) pay is set by law. There is no pay collective bargaining in federal administration, but the government sets unilaterally pay following consultation with employees representatives.

Factors considered in adjusting pay Cost-of-living, private sector pay and productivity are all factors taken into account in adjusting pay. Collective bargaining on pay takes place once a year.

Principles for determining individual remuneration The same pay scale and job classification system applies to all federal public service employees. The law on the status of civil servants has been partially revised. As of 1996, management by objectives and employee appraisal have become important elements in determining individual remuneration. In the course of their careers, employees pass through several grades. Progression from one grade to the next gives rise to a “special” increase. Within each grade, “ordinary” increases are paid until the maximum rate for each grade is attained. The size of these ordinary increases is set by government order. As of I January 1996, these increases have been divided into three groups, in order to individual- ise pay according to individual performance. Seniority advancement can be increased or decreased based on individual performance. The fiscal plan should not be influenced by these measures.

Role of the government in setting pay bill volume Factors taken into account in determining the amount of the pay bill The central government sets maximum increases, expressed as a percentage, based on the previous year’s pay bill volume. The budget is subject to parliamentary approval. The Finance Ministry can suggest staff cuts to the Federal Council, which is also subject to parliamentary approval. There is a also a special hiring programme aimed at the unemployed, implemented by certain services (The Federal Office for Industry and Labour and The Federal Personnel Office). Salaries paid as part of this programme are charged as DESCRIPTION OF PAY DETERMINATION SYSTEMS

a separate budget item. The difference between the contribution made for this item and salaries paid is reimbursed by the unemployment insurance fund. Senior staff members have taken a cut in salary in order to help stabilise the State’s finances. Over a three-year period, starting in January 1995, senior staff salaries are being reduced by 1 per cent, senior civil servants’ and directors’ salaries by 2 per cent, and federal judges and prosecutors’ salaries by 3 per cent.

Central government control of labour cost increases Parliament controls the pay bill volume by placing a maximum limit on the number of posts. The Federal Council can increase salaries by a maximum of 5 per cent, while Parliament controls the process via the budget.

Decentrafised management of the running costs budget A decentralisation process is underway as part of a New Public Management (NPM) programme. The agencies participating in this programme have increased autonomy. They manage a running costs budget within the framework of aims and objectives negotiated with their ministry. They can also recruit temporary staff, subject to Federal Council and parliamentary approval. The Post and Telecommu- nications, Swiss National Railways, armed services and Federal Liquor Control Board already have their own operating budgets. Employees working for the above-mentioned four agencies, together with those working for agencies participating in the NPM programme, are all affected by the decentralisation of budget management. They account for 67 per cent of all federal public service employees. The size of the budgets for agencies that fall under the NPM programme is negotiated by the Finance Ministry and each service. The budget thus set is then subject to Federal Council and Parliamentary approval.

Powers of the decentrafised fevef Individual bonuses of between SF 500 and SF 5 000 are available for special benefits. An amount equal to 0.5 per cent maximum of the pay bill is set aside for this purpose. This amount is also used for exceptional bonuses. These bonuses are in the form of gifts or coupons (not money), and have a maximum value of SF 200.

Performance-based remuneration A performance-based remuneration programme is under review. It will be implemented, together with a new job classification system, in two stages. Its 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

ultimate goals are to increase the current level of pay flexibility and to expand current pay grades. In the interim, the NPM programme offices are developing a more flexible job classification system.

TURKEY

Key principles Institutional framework of the pay determination system All public sector pay for all levels of employees are set by the central government. The Budget Act determines pay increases for the first half of the fiscal year. Increases for the second half of the year can be determined by the Cabinet as part of the powers vested in it by the Budget Act. There are no pay negotiations; pay is determined unilaterally by the government.

Factors considered in adjusting pay Pay increases take budgetary constraints and the predicted inflation rate for the year into account.

Principles for determining individual remuneration Two different pay scales apply to civil servants and contractual employees, respectively. The pay scale for civil servants is based on grade and title. That of contractual employees takes qualifications and job experience into account. Except for a few categories of contractual employees (such as artists), there is no bonus system. On those rare occasions that bonuses are paid, they are not dependant on individual performance. Seniority increases are automatic. Senior civil servants who perform very well can be appointed to an executive post.

Role of the government in setting the pay bill Factors taken into account in determining the pay bill volume The annual pay bill volume is set by the central government, taking the following factors into consideration: - the previous year’s pay bill volume; - increase or decrease in staff; - macro-economic aggregate: that share of the GNP made up of compensation costs, predicted inflation rate and public deficit; - pay increases based on salary coefficient during the current year; DESCRIPTION OF PAY DETERMINAJION SYSTEMS

- indirect compensation costs such as medical expenses and certain allowances; - increase in staff during the year.

Supplementary information The Committee for personnel reform, which reports to the prime minister, was set up to revise the public sector pay determination system, to implement a performance-based pay system and to develop a new job classification system. In addition, the Finance Ministry has initiated a project aimed at improving the effectiveness of the personnel management system.

UNITED KINGDOM Key principles Institutional framework of the pay determination system All public sector departments and agencies are responsible for the pay determination and job classification system of their employees. This does not hold for senior civil servants. The process of delegating responsibility in these areas was started in 1994 and completed in April 1996. Pay is determined by independent Pay Review Bodies for the senior civil service, judiciary, armed forces, primary and secondary education, and for medical staff in the national health sector.

Factors considered in adjusting pay The policy of the public authorities regarding pay adjustments is that agency operating budgets, including labour costs, are based on the assumption that salary increases are financed by resources and covered by gains in efficiency and other savings. The same approach is used for other groups in the public sector. The most important aspect of pay determination is the need to recruit, retain and motivate suitable employees within the limits of available resources. Pay adjustments for police personnel are based on the average pay increase for the economy as a whole. Collective bargaining takes place on a yearly basis. Where decentralisation has been achieved, however, agreements can be valid for longer or shorter periods (from 6 to 18 months).

Principles for determining individual remuneration Different pay determination systems apply to different employment groups and functional sub-sectors. Each department and agency is free to use its own pay determination and job classification system. 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Staff of Central Government Departments 1995-96 (estimated outturn) in thousands (in full time equivalent)

Ministry of Defence 100.5 Foreign and Commonwealth Office 5.9 Overseas Development Administration 1.4 Ministry of Agriculture, Fisheries and Food 10.3 Intervention Board 0.9 Trade and Industry 9.9 Export Credits Guarantee Department 0.5 Department of Transport 9.3 Department of the Environment 11.6 Home Office 51.0 Lord Chancellor’s and Law Officer’s Departments 20.6 Department for Education and Employment 44.4 Department of National Heritage 1 .o Department of Health 3.8 Department of Social Security 90.0 Scotland 12.1 Wales 2.2 Northern Ireland 26.1 HM Customs and Excise 23.5 Inland Revenue 58.6 Chancellor’s other departments 10.3 Cabinet Office, OPS, COI, and Privy Council Office 3.4 Security and Intelligence Services 9.4 Trading funds, DSA and Crown Estate Office 31.1 Total 537.7

Role of the government in setting the pay bill Determining the size of running costs budgets The State does not determine the pay bill volume of departments and agencies, but sets the limits of the operating budgets. These budgets cover labour costs and other administrative costs (such as rent, heating, electricity, etc.). The amount paid by the central government is calculated by deducting the departments’ own income from their gross expenditures (i.e. if the departments have income, the actual operating budget can exceed the amount allotted by the government).

Government financial constraints on departments The limits of the operating budgets are set for a three-year period following ministerial approval at the time of the debate on public spending programmes. The published figures for a given year thus cover three years. They are, however, reviewed the following year during the debates on the next public spending DESCRIPTION OF PAY DETERMlNA JION SYST€MS programme. Runingocosts are reviewed by the Treasury as each department’s budget is being debated. The main elements that are looked into are predicted price and salary increases, improvements in efficiency, and increases in the workload (this includes privatisation and other factors, such as redundancy payment costs). The final decision on budget allocations is taken collectively by the ministers. Each department is free to decide how to divide its running costs budget between compensation costs and other expenses. Departments are also able to change this allocation during the course of the year in the event that their priorities change.

Role of the government in co-ordinating pay determination at the decentralised level

Each department and agency is responsible for its own pay determination system, including pay negotiations. They must implement agreements corresponding to their needs and the government’s policy regarding the civil service. At the same time, they must respect the constraints on public spending. The agreements should meet the following criteria: - better value for money from the pay bill; - better budgetary control of pay costs; - improved flexibility in the pay system; - provide an effective link between pay and performance. The departments and agencies are also required to assess the results of their new system in light of clearly defined objectives.

Performance-based rem un era tion The departments are under an obligation to implement performance-based remuneration, but the government does not recommend any particular system. There is more than one option, and the departments prefer using tailored agreements that correspond to their needs.

Pay determination in the National Health Service The pay determination systern in the NHS differs in many respects from that of the Civil Service. It is highly devolved in the sense that there are different types of management, various groups of employees and professions, and differ- 3 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

ent pay systems. Until 1990, the pay of all NHS staff, with the exception of senior managers, was nationally determined in two different ways:

a) pay for about 50 per cent of the staff was determined by Pay Review Bodies which recommended the pay rate increase for those staff to the Parliament; 6) the other 50 per cent had their pay determined in a traditional collective bargaining framework.

Since 1991, the NHS has been split up into over 800 different bodies, the NHS Trusts. Staff already employed in the Trusts had the right to retain their previous contracts, keeping their rates of pay and conditions of services determined at the national level. However, the conditions and pay for new employees in the Trusts are determined unilaterally by the employer. This means there are staff doing the same job but whose pay and conditions are different. In 1996 (i.e. 6 years after the NHS trusts were introduced) 25 per cent of the transferred staff had their pay determined by the trust management and the remaining 75 per cent chose to remain linked to the national agreement.

Pay has been devolved in the health sector within an internal market model in which Health Trusts compete with one another. In this context, Pay Review Bodies continue to operate. For the staff, the move to locally negotiated pay is essentially about changes in working practices and conditions of service, and it may also be about different levels of pay. For managers, it is about improving services and better value for money.

In an attempt to move forward, the government has progressed in the past 2 years towards a policy of local pay in a national framework. There is now a complex set of procedures through which the Pay Review Bodies, each year, recommend pay rates and leave some margin of manoeuvre to local managers to negotiate. In practice, that means that any employee, who, through local negotiation, has his pay settled for lower than the agreed national rate, will have his pay automatically increased on the following 1st April. Thus, the most he risks in any one year is the difference between the local statement and the subsequently agreed national settlement for a 12-month period.

Civil Service employment by level of government in 1995

Central Government 1 896 000 48.2% Local Government 2 040 000 5 1.8% Total 3 936 000 100.0% DESCRIPTION OF PAY DETERMINAJION SYSTEMS

UNITED STATES4

Key principles Institutional framework of the pay determination system The constitution of the United States assigns fiscal control to Congress. This control is exercised through appropriation acts and, in the case of federal pay, by enactment into law of policies, principles and procedures governing pay rate determination for federal employees. More than fifty different pay determination systems are used within the federal civil service, thirty six of which cover most employees. The main systems are: - The General Schedule (GS), which applies to most white collar workers in the executive branch and in certain agencies of the legislative and judicial branches of the federal government. This pay system applies to approximately 1.4 million employees. - Federal Wage System applies to about 300 000 blue collar workers in the federal governmen t . - Senior Executive Service (SES) was founded in 1979 following the Civil Service Reform Act of 1978. The SES covers about 7 200 managerial, super- visory, and policy posts in the executive branch at levels above GS positions. SES members do not require Presidential appointment or Senate confirmation. - The Executive Schedule covers about 500 executive branch positions requiring Presidential appointment and Senate confirmation. For most federal employees, the issue of pay is excluded from the collective bargaining process. This is not the case, however, for the 840 000 employees of the US Postal Service, a government-controlled corporation, who were removed from the General Schedule pay system in 1971. Federal law does provide for negotiations on working conditions, excluding those rights specifically reserved to management, or issues covered by federal law or regulation. In addition, Federal employee unions lobby the Congress and the executive branch extensively in an effort to increase pay for Federal employees.

Factors considered in adjusting pay The General Schedule is adjusted annually, based on the increase in the Employment Cost Index (ECI), less 0.5 percentage points. Since 1994, locality- based comparability payments have been pay in addition to the rate of basic pay to take into account differences in GWnon-Federal white-collar pay disparities among about 30 separate locality pay areas collectively covering the entire 48 contiguous States and the District of Columbia. federal Wage System pay rates 87) TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

are determined on the basis of local pay surveys in 134 local wage areas. SES pay rates are determined by the president, and executive Schedule salaries are set by Congress.

Principles for determining individual remuneration The General Schedule (GS) consists of fifteen grades, each defined in terms of difficulty, responsibility, and the qualifications needed. A salary range of 30 per cent (10 step rates) is provided for each grade. Within-grade advancement depends upon length of service in grade and the individual employee’s performance appraisal rating. Advancement is faster at the lower rates of the grade and slower at the higher rates of the grade. Employees demonstrating “high quality performance ‘‘ may progress more rapidly through the salary range for their grade by being granted additional within-grade increases. The Federal Wage System consists of separate schedules for workers, leaders, and supervisors in each of the 134 wage areas. the SES consists of six rates of pay, and the Executive Schedule have five levels.

Role of the central government in setting the pay bill In the event of a national emergency or unfavourable economic conditions, the President has discretionary authority to reduce across-the-board and locality pay increases for GS workers. A budget proposal is submitted in January or February of each year with the President’s recommendations for pay increases. Agencies often have to absorb part or all of the costs of pay increases.

Civil Service employment by level of government in 1994

Federal Government* 2 917 730 15.9% States 4 163 786 22.7% Local Government 11 276 687 6 1.4% Total 18 358 203 100.0%

* includes US Postal Service employees (838 307) Pad 3 COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

It is customary to distinguish between centralised systems - those in which both pay bill volume and salary growth rates are set at central government level - and decentralised5 systems, in which government agencies or departments enjoy autonomy in managing their staff and adjusting pay. These are in fact extreme hypotheses. In practice, both systems contain arrangements for achieving a number of objectives: wage flexibility, cutting public spending, maintaining control over wage trends etc. In a centralised system, elements of decentralisation are usually introduced in response to the need to increase the flexibility of pay and personnel management systems, and to reduce public spending. However, some systems maintain a partial level of centralisation, even though the agencies or departments take part in the pay determination process. Through budgetary constraints, the government endeavour to control or co-ordinate pay increases and to avoid attempts by the parties to outbid one another in workplace negotiations. The questions that need to be asked are whether centralised systems are still an essential tool in macroeconomic regulation and whether they are necessary as a guarantee of horizontal equity in public sector pay. The OECD countries, which are all pursuing the same goals of economic stability, reduced public spending and social equity, offer a range of experience in the matter. This section presents a comparative analysis of the public sector pay determination systems of OECD countries. As a starting point, four criteria were selected on the basis of case studies: 1. presence or absence of collective bargaining and the number of levels of negotiations; 2. contents of salary negotiations; 3. financial constraints imposed by the central government and degree of autonomy of the agencies and departments with regards to the budget; 3 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

4. procedure for annual compensation cost adjustment by the central government,

On the basis of these criteria which are used to identify pay determination systems, we have calculated a decentralisation index. The analysis is then com- plemented by the inclusion of the various job classification systems and a typology of pay determination systems is proposed. Finally, on the basis of empirical results, a country’s decentralisation index has been matched with the pay bill increase and the effect of a change of pay system on pay bill volume observed.

A COMPARATIVE OVERVIEW OF PAY DETERMINATION SYSTEMS

Centralised pay negotiations

The same centralised level can be structured very differently in different countries in order to take job market pressures for specific groups of professionals into account. In Germany, Spain and France, collective bargaining on pay is centralised, and the same agreement applies to all public service employees, regardless of the functional sub-sector or the level of government in which they are employed. Employment status does, however, lead to differences. In Germany, civil servant pay is set by law, while senior civil servant pay is excluded from collective bargaining in Spain. In the Netherlands, a central pay agreement applied to all public sector employees until 1993. Since then, pension matters have remained centrally negotiated, but negotiations about the other terms of employment, including pay matters, are now organised separately for each of the eight functional sub-sectors of the public service (ministries, education, police, defence, justice, provinces, municipalities and Polder Boards). In Italy as well, pay negotiations are held in each of the eight functional sub-sectors defined as part of the 1993 civil service reforms. The police and armed forces, university professors and other academic staff, judges and prosecutors, as well as senior civil servants are excluded from these negotiations. Canada, where negotiations regarding federal employees are centralised, should be included in this group of countries. Since the Canadian Federal Gov- ernment allocates an operating budget to each ministry, however, Canada’s pay determination process differs considerably from those of the countries discussed above. For the United States, Table 7 indicates that there is no pay negotiation at the federal Government level; however, pay agreements should be mentioned for the 840 000 employees of the US Postal Service. In addition Federal employees’ unions lobby the Congress and the Executive Branch extensively for pay increases for the Federal employees. This illustrates the problem with trying to classify WL countries according to the institutional framework of their collective bargaining. Table 7. Public sector pay determination systems in selected OECD countries

Institutional Content Financial constraints Annual pay bill framework of Pay from central adjustment of collective bargaining agreements or federal government at the central level

Pay is excluded from collective Ex ante, based on the President's Pay Recommendations bargaining (except for the US and the Employment Cost Index (ECI). Postal Service: pay bargaining). Single level of collective bargaining Central level

For the entire public service: Germany (except civil servants) Across-the-board increases. Ex ante, based on income changes and the general situation of the economy.

France Across-the-board increases. Ex ante, to maintain civil servants' purchasing power.

Spain Across-the-board increases. Ex ante, based on forecast of inflation. Ex post, automatic adjustment if inflation exceeds forecast. By functional sub-sectors:

Italy (except armed forces, police, Across-the-board increases. Ex ante, according to budgetary constraints. university professors, magistrates and senior managers).

r------Netherlands Different increases - ,A limited number Ex ante, based on pay levels in the private sector and on the by sector. :of agencies are ; overall economic situation. In the budget, additional personnel :free, within limits, : costs can be transferred towards other administrative costs and Two levels of collective bargaining :to manage their ; exceed the operating budget within a limit of I per cent. ;budget I Municipalities and provinces are autonomous in fixing the budget Central level + negociations I ------1 for compensation costs. by professional groups ...... Ireland Across the board increases - :A limited number I Ex post, based on the outcomes of central and local pay bargaining :of agencies are free ; and changes in numbers. and additional negotiated I increases by groups...... :to manage their budget : ...... Central level + negotiation Across the board increases - ; A limited share of the pay ; Ex ante, based on changes in private sector pay. at the workplace and individual allowances ; bill is reserved for use : at the local level I Denmark negotiated at the local level. :...... I k Table 7. Public sector pay determination systems in selected OECD countries (cont.)

Institutional Content Financial constraints Annual pay bill framework of Pay from central adjustment of co Ilective bargaining agreements or federal government at the central level

Across-the-board increases Depending on fiscal constraints, the adjustment factors apply to Federal level administrative costs (without separating personnel costs from Canada (Public Service) other costs). At the end of the year, unspent appropriations (of - up to 2 per cent of the operating budget) can be carried over Central level + negotiation ' to the following year. at the workplace Across-the-board increases are funded by the central Australia (Australian Public Service: Across-the-board increases at the central government. Productivity gains in agencies are pooled at the level and freeze of pay bargaining at the central level then distributed within or outside the agency.This local level in 1996. practice has been suspended for I996.Agencies can exceed their running cost budget (up to 10 per cent of the budget) and Standard pay increases at the central borrow against allocations for the next financial year. level plus pay based on individual Changes in the pay bill at the central level are based on standard performanace and results in agencies. pay increases. At the local level, individual and collective pay increases are funded by the agencies. Biannual budgets in agencies. Ajustment of the total budget at the central level according to At the central level, frame agreements changes in the costs of corresponding items in the private sector. setting pay funds or minimum pay Agencies have the possibility to either save part of the budget increase. In agencies, negotiation on for the following budget period or use a credit of up to 5 per individual pay in order to distribute the cent of the budget. funds allocated at the central level among I The government operates through running cost limits, set for employees. Single level of pay bargaining the three years by ministerial agreement in the annual public spending round.The main areas considered by the treasury are Workplace level pay and price assumptions, efficiency improvements and workload United Kingdom - Public service Arrangements must follow value for changes. Departments may carry forward unspent running cost (NHS,Teachers, Local Authorities: money from the pay bill. balances from one year to the next, subject to fairly broad Pay Review Bodies and constraints. negotiations). New Zealand (individual or Based on the labour supply in the Ajustment of the total budget depending on financial constraints collective agreements). economy as a whole, on budgetary at the central level. Department chief executives are free to constraints and efficiency gains. manage the resources under their control and must follow broad

I government priorities for the current financial year and the following two years.

I. Running cost budgets do not differentiate personnel costs, i.e. the pay bill and indirect pay costs, from other administrative costs. COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

Pay negotiations on two levels If one shifts the focus to countries which introduced two levels of pay bargaining, the extent to which their pay systems are decentralised depends primarily on how the pay bill volume is set. First among these are Ireland and Denmark, where total compensation costs are set by the central government. There is a very strong tradition of negotiation and social consensus in these two countries. In Ireland, public sector pay negotiations are broken down into two steps. Firstly, a centralised agreement determines the across-the-board rate of increase. A second round of negotiations is then undertaken by the unions, organised by occupational group, to present specific claims of the group they represent. The pay bill is adjusted ex post, in order to pass on the outcome of local and central negotiations. It is clear that such a system could make the application of policies aimed at limiting pay bill increases difficult. However, the fact that the unions are involved in drawing up economic programmes and signing tripartite agreements should, in principle, keep demands for salary increases within reasonable limits. In Denmark, a system has officially been put in place to ensure that part of the pay determination process occurs at the workplace. The government set aside a certain percentage of the pay bill for individual allowances, the size of which is determined by local negotiations. Across-the-board pay increases are set at the central level in all the countries that we have discussed up until now. Other countries, where negotiations take place both centrally and at the workplace, have gradually abandoned this practice, or modified it, alternating between across-the-board pay increases and other kinds of pay increases.

Pay negotiation at the workplace level The next group of countries to be discussed all delegate pay determination to the agency or departmental level. As in the case of Canada, the agencies and departments are responsible for managing their own running costs budgets. The main difference between Australia, Finland and Sweden, on the one hand, and New Zealand and the United Kingdom (Civil Service only) on the other, lies in the type of collective bargaining used. In Australia, Finland and Sweden, two levels of negotiations are still held, in addition to the implementation of decentralised management of the running costs budget. In the UK Civil Service and New Zealand, reform of the pay determination system is accompanied by changes in the collective bargaining system. When centralised negotiations are still held, it is important to specify what will be determined at that level, and who will finance it. Clearly, an across-the- board pay increase that is not funded out of the central budget may penalise those departments that have achieved smaller productivity gains. It may even A TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

force such departments to cut staff in order to make the necessary funds available. Pay determination systems vary not only across countries but also within countries. In some cases, a description of the system limited to the civil service gives only a partial picture of pay determination in the extended public sector. In particular, this is the case for the United Kingdom, where pay reform focused on Civil Service. Different systems, based on collective bargaining or Pay Review Bodies apply in National Health Service, Education , Police and local authorities. In the United Sates and other federal countries, systems differ according to occupational groups, states and localities.

Single or multiple pay scales The procedure for individual pay determination has not been taken into account in Table 7, but will be dealt with in the section devoted to statistical analysis. Public sector employees’ individual pay is made up of many components. This allows many diverse factors, such as pressures on the local or occupational job market, individual performance, etc., to be taken into account. This approach to individual pay determination raises the question of equity. Those countries having implemented a uniform job classification system for the entire civil service (Australia, Denmark, Spain and France) can guarantee equity and uniformity of pay. These systems are, however, rigid, and cannot adapt to employment trends and job market pressures. Spain, with its specific supplements, and France, with its new index-related premium (nouvelle bonification indiciaire, NBI), have attempted to respond to new demands. The costs of these measures, financed by the central government, contributes to the increase in the pay bill. Other countries, of which Australia, have implemented a job classification system based on broad banding, in order to adapt their workforce to the needs of their various services. When agencies and departments are given the opportunity to implement their own classification systems (United Kingdom), salary increases in one agency may lead to increases in other agencies as well, undermining the effectiveness of decentralised systems.

DESIGN OF A DECENTRALISATION INDEX FOR PAY DETERMINATION SYSTEMS~ An index has been used to compare and classify countries according to their pay determination system. As illustrated above, some aspects of a system can be rigid, while other aspects are flexible. Methodology has to be flexible to cover these differences. with this in mind two aspects were given particular attention: - The index must allow for variations over time. Two periods were thus LlE identified, the first describing the situation before the reform and the COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

other describing it as from the year the reform took effect (Tables 8a, 8b and 9); - To allow for the diversity of pay remuneration systems within a given country, two separate ranges were used: a) one covering public service; 6) the second covering the “extended public sector”, excluding the public service at central or federal level. Indices for each of the two ranges were weighted by staff numbers (Tables 8c and 8d) when a uniform system applies to the entire range, a single index has been used. Seeing that the range of the index is 4 to 16, one can compare countries in terms of the rigidity of their systems. One group of countries comprising Austria, France and the United States (federal level) has introduced flexible elements into pay determination systems in the reference period. Flexibility was introduced in Austria in 1994 and in France (index = 7, Table 8d) in 1990 in individual pay determination. The last two countries nevertheless form part, together with Germany (index = 6), Spain and Italy (index = 7), of the group of countries in the sample with the most centralised systems. In the United States the introduction in 1993 of pay differentials based on location resulted in allowance being made for labour market tensions. Again in the United States, pay systems in individual States are as a rule more flexible, in particular salary scales are differentiated and management of the wage bill is decentralised. The index for the “extended public sector” (i.e. excluding federal government) in Table 86 is 10. The total index weighted by staff numbers becomes 9.5 for the United States (Table 8d), whereas it remains the same for the group of countries referred to above owing to the uniformity of the pay system across the entire public sector (Table 8d). Denmark (index = 8, Table 8d) provides for possible pay adjustments at local level, including two levels of pay bargaining. However, there is tight central government control of budgets in this country, which hampers decentralisation in that sums allocated for pay flexibility leave local managers inadequate room for manoeuvre. Ireland (index = 11, Table 8d) has considerable flexibility, since labour market tensions can be reflected in pay through the two institutionalised levels of collective bargaining. In addition, the wage bill can be adjusted ex-post to finance increases negotiated by occupational groups. In the Netherlands (index = 1 I, Table 8d) separate bargaining in the eight operational sub-sectors and the flexibility of some agencies through decentralised management of operating budgets provide room for flexibility. Australia and Canada have a similar index (index = 12, Table 86) for the federal public service, with however two striking differences in their systems, one relating to bargaining arrangements (there is no bargaining at the workplace in Canada) and the other on pay scales (uniform scale in Australia and scales for employee groups in Canada). Finland and Sweden (index = 14 and index =15 respectively, Table 86) have a lower decentralisation index than New Zealand and Table 8a. Decentralisation index of the pay determination system in OECD countries before reform

Flexibility Level Decentralised Flexi bi I ity in pay bill pay bill in individual of Pay adjustment Total index negotiation management pay determination at the central level

Extended Extended Extended Extended Extended Central Central public Central Central Central public public public public I eve I level level level level sector sector sector sector sector

Australia 2 2 4 4 3 3 2 3 11 12 Austria 2 2 1 1 1 1 2 2 6 6 Canada 2 2 2 3 2 2 3 4 8 11 Denmark 3 3 1 1 1 1 2 2 7 7 Finland 3 3 1 1 2 2 2 2 8 8 France 2 2 1 1 1 1 2 2 6 6 Germany 2 2 1 1 1 1 2 2 6 6 Ireland 3 3 2 2 2 2 3 3 10 10 ltaly 2 2 1 1 1 1 3 3 7 7 Netherlands 2 2 1 1 2 2 2 2 7 7 New Zealand 3 3 4 4 4 4 4 4 15 15 Spain 2 2 1 I 1 1 3 3 7 7 Sweden 2 2 4 4 3 3 2 2 8 8 Switzerland 2 .. 2 .. 2 .. 3 .. 9 .. United Kingdom 2 3 1 1 2 2 3 3 8 9 United States 2 3 1 3 1 1 2 3 6 10

Notes: The degree of intensity ranges from 1 to 4, where 1 refers to the absence of the observed criterion, and 4 to its maximum level Core public service is not included in the “extended public sector”. Table 8b. Decentralisation of the pay determination system in OECD countries after reform

~ ~~ Flexibility Level Decentra I ised FI exi bi I i ty in pay bill pay bill in individual Total index of Pay adi ustment negotiation management pay determination at the central level

Extended Extended Extended Central Extended Central public Centra I Central Extended Central public public public public level level level level level sector sector sector sector sector

Australia 3 3 4 4 3 3 2 3 12 13 Austria 2 2 1 1 1 1 3 3 7 7 Canada 2 2 4 4 3 3 3 4 12 13 Denmark 3 3 2 2 1 1 2 2 8 8 Finland 3 3 4 4 3 3 4 4 14 14 France 2 2 1 1 1 I 3 3 7 7 Ireland 3 3 3 3 2 2 3 3 11 11 Netherlands 3 3 2 2 3 3 3 3 11 11 New Zealand 4 4 4 4 4 4 4 4 16 16 Sweden 3 3 4 4 4 4 4 4 15 15 United Kingdom 4 3 4 3 4 3 4 3 16 12 United States 2 3 1 3 1 1 3 3 7 10

Notes: The degree of intensity ranges from 1 to 4, where 1 refers to the absence of the observed criterion, and 4 to its maximum level Core public service is not included in the "extended public sector".

COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

Table 8d. Decentralisation index of the pay determination system in OECD countries for total public sector after reform Weighted by the number of employees

Flexibility Flexibility Of pay Decentralisedpay bill in pay bill in individual Total index negotiation management pay determination at the central level

Australia 3 4 3 2.8 12.8 Austria 2 1 1 3 7 Canada 2 4 3 3.8 12.8 Denmark 3 2 1 2 8 Finland 3 4 3 4 14 France 2 1 1 3 7 Ireland 3 3 2 3 11 Netherlands 3 2 3 3 11 New Zealand 4 4 4 4 16 Sweden 3 4 4 4 15 United Kingdom 3.1 3.1 3.1 3.1 12.4 United States 2.8 2.7 1 3 9.5

Notes: The degree of intensity ranges from 1 to 4, where 1 refers to the absence of the observed criterion, and 4 to its maximum level. Core public service is not included in the “extended public sector”. Weighting: numbers of employees at central or federal level, and number of employees in States or at regional and local levels.

To do this, the average trend of the total wage bill after implementation of the reform was looked at. A data availability problem arose, since ideally the new structure should be analysed after full application of the reform. This was not possible for Finland, since the reform was not complete, nor for the United Kingdom where it was completed in April 1996. The reference periods used are those mentioned in column 2 of Table 9. Figure 3 shows that countries which have reformed their pay systems have kept their total wage bill under control. How- ever, it must not be forgotten that reform of the pay system in those countries went hand-in-hand with other reforms in the provision of public goods and services - such as sub-contracting, “testing on the market” and the creation of quasi- markets, not to mention privatisations and changes in the status of State-owned enterprises - which have reduced public employment and the total wage bill. It is also seen that the United States, which has not significantly decentralised its pay system, has nevertheless limited the increase in the wage bill to nearly the same extent as has New Zealand. m TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 9. Reference periods

First period Second period

Australia 1990-92 1993-95 Austria 1985-93 I994 Canada 1988-93 1994 Denmark 1985-9 1 1992-94 Fin land 985-9 1 992-94 France 985-89 990-95 Germany 985-93 - Ireland 985-90 99 1-95 Italy 985-93 - Netherlands 985-92 993-95 New Zealand n.a. 199 1-94 Spain 1985-92 - Sweden 1985-89 1990-95 United Kingdom 1985-92 1993-95 United States 1985-92 1993-95

+ Figure 3. Decentralisation index and changes in the public sector pay bill'

18 18

New Zealand 16 16 Sweden 1 0 14 m 14 Finland Canada 0 12 United Kingdom 0 12 Australia 0 Netherlands 0 Ireland 10 10 0 United States Danemark 8 a 8 0 0 . Oltaly 0 France Austria Spain 6 6

4 4

-4 -2 0 2 4 6 8 Changes in pay bill in real terms (%)

100 I. Changes in pay bill in real terms after reform. COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

Box 1. Ordering the variables evels was used to order the variables:

level and the local

Level 4: negotiations only take place at the local level or at the workplace.

Decentrallsed pay bill management Level 1: the pay bill volume for the entire public service is set and managed by the central or federal government; Level 2: decentralisation of a small part of pay bill management; Level 3: a limited number of agencies autonomously manage their own running costs budgets; Level 4: running cost budget management is decentralised for the entire civil service. I Level of flexibility in annual pay bill adjustment at the central level: Level 2: ex ante adjustment of the pay bill determined by various factors; LeveZ 2: ex post adjustment of the pay bill determined by the outcome of negotiations as well as other factors; Level 3: the total budget of the public service (i.e. compensation costs and other administrative costs) is adjusted after consideration of various factors; Level 4: the size of the running costs budget is determined separately for each agency or department of the civil service.

Level of flexibility in determining individual pay: Level 1: a single pay scale for the whole public service and the absence of bonuses; Level 2: a single pay scale for the whole public service supplemented by small to medium size bonuses; Level 3: separate pay scales for different groups or sub-sectors of the civil service, or consideration of the characteristics of the post held; ncy. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

CLASSIFICATION OF PAY DETERMINATION SYSTEMS

To conclude, we present a classification of the different pay determination systems, based on the principal component analysis method. The variables used are those set out in Table 8.

Box 2. Principal component analysis Principal compo t analysis desc res of observed subjects, in this case countries is data analysis a comprehensive analysis of these countries and the variables influenc in the pay bill, making it possible to graphically represent similarities and nces between countries. Countries can thus be divided into homogenous ed on the characteristics under review.

The results (Figure 4) show that the best way of representing countries in terms of their pay determination systems is obtained by using as explanatory variables: a) the total decentralisation index (axis 1); 6) the pay bargaining level and flexibility in individual pay determination (axis 2). Where countries appear in the diagram reflects the above findings. If we look at the countries considered as “very decentralised” to the right of axis 2, it is seen that the degree of total decentralisation is the main test in New Zealand, while in Australia and the United Kingdom the existence of two bargaining levels is important. In Finland and Sweden, flexibility in individual pay determination outweighs the dual bargaining system The countries to the left of axis 2 are to be seen, among others: a) the United States and Ireland where the total decentralisation index is the most important variable; 6) Austria, France, Italy, Spain and Switzerland where analysis shows relative flexibility in individual pay determination; c) Denmark where the two bargaining levels are the main factor.

EMPIRICAL RESULTS

We propose below to check, using empirical results, whether decentralised pay determination systems do limit increases in the wage bill. The proposed method enables allowance to be made, thanks to the criteria included in the total 1102 decentralisation index, for institutional differences between countries and so to COMPARATIVE ANALYSIS OF PAY D€T€RMlNATlON SYSTEMS

+ Figure 4. Country typology according to their public sector pay determination system

Axis 2 4 0 Danemark Increasing level of pay negociation

Australia 0 Ireland 0 Germany United States 8 0 United Kingdom 0 @Netherlands New Zealand

Increasing total Axis I decentralisat ion

/Austria/France Finland Switzerland \\Italy 0 Sweden Spain 7 Increasing flexibility in individual pay

0 Canada

Note: For Switzerland, the typology takes into account only the central level.

proceed on a “other things being equal” basis. It is proposed to test the hypothesis that, other things being equal, an increase in the decentralisation index leads to a fall in the rate of increase in the wage bill.

Study of the correlation between the trend of the wage bill and qualitative and quantitative variables This type of analysis measures the intensity of links between two variables. We seek here to bring out possible links between the total wage bill and certain pre-defined variables that are thought to influence it. The variable to be explained is the observed annual change in the total wage bill over two periods (Table 10) and the explanatory variables are the total weighted decentralisation index and various variables set out in Table 11. The results obtained have to be interpreted with caution, having regard to the small size of the sample (26 observations). 1031 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table 10. Changes in pay bill and employment for the total public sector

First period Second period

Changes Changes Changes Changes in pay bill in pay bill in employment2 in employment2 in real terms' in real terms2 (%I (70) (%I (70)

Australia 2.9 -0.2 -2.0 -1.7 Austria 3.0 -3.8 2.3 -0.1 Canada 2.6 1.6 -0.6 -1.6 Denmark 0.8 0.0 1.7 0.9 Finland 2.0 -0.9 -2.4 -3.6 France 1.5 0.5 1.3 -1.5 Germany 3.0 -1.5 I re land I 2.7 -3.0 4.8 1.8 Italy 3.2 -0.6 .. .. New Zealand .. .. 0.4 -0.9 Netherlands 0.6 0.0 -1.8 -2.1 Spain' 6.5 2.6 Sweden 2.5 0.8 -2.5 0.2 United Kingdom' 2.6 -0.4 -I .3 -3.1 United States 2.3 1.7 0.8 1 .o

1. The pay bill is not available for these countries; compensation costs have therefore been used instead 2. Average annual changes for the period.

Table 11. Correlation between changes in the pay bill and in the employment level, and the decentralisation index, and the variables of pay determination

Changes Changes in the pay bill in the employment in real terms level

Correlated with: Decentralisation index -0.59** -0.22 Pay negotiation level -0.42* * -0.16 Budgetary constraints imposed by the central government -0.46* * -0.06 Pay bill adjustment at the central level -0.58** -0.27 Individual pay determination -0.31 -0.07 Em ploy ment Changes in public sector employment over the period 0.51** -

** Significant at the 5 per cent level

The results (Table 11) show that there is a significant link between changes in 1104 the total wage bill and the various qualitative variables used, with the exception COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS

of the variable “individual pay determination”. The negative correlation of the decentralisation index and the variables “budgetary constraints” and “adjustment of the total wage bill at central level” with changes in the total wage bill means that a high degree of decentralisation goes hand-in-hand with low values for the increase in the wage bill. Another striking feature is the negative correlation between the framework of pay bargaining with changes in the total pay bill. That means that when pay is negotiated on two levels (central level plus agency or department level) or only at the decentralised level (i.e. in agency or department), changes in the pay bill are lower than when pay is negotiated centrally. As an experiment, the same calculations were made replacing changes in the wage bill by changes in public employment, to test the link between variation in employment and the pay determination system. The results are not significant and it can be concluded that variation in public employment is not linked to the decentralisation index. Lastly and unsurprisingly it is seen that variation in the wage bill correlates positively to that in public employment. However, although the link may well exist, it is less marked than that estimated between the variation in the wage bill and the decentralisation index.

Results of the econometric analysis

The results set out above lead us to ask what is the respective weight in wage bill trends of changes in public employment on the one hand, and the degree of decentralisation of the pay determination system on the other, and what is the statistical validity of our assumptions. To do this we have used the equation:

dMS = cx + P(dE) + ~(1)+ E where - dMS is the variation in the pay bill - dE is the variation in employment - I is the decentralisation index. We obtain the following results:

Estimated variables T-Student Level of significativity

Employment 0.45 2.683 0.0 133 Decentralisation Index -0.37 -3.393 0.0025 Intercept (a) 5.26 4.910 0.000 1

Adjusted R2 = 0.47. Number of observation = 26. 4 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

from which it is apparent that two variables - public employment and the decentralisation index of the pay system - explain changes in the wage bill. The empirical results suggest that the reform of pay systems as such has had slightly more weight in limiting the increase in the wage bill than has the reduction in the volume of employment. It can be concluded that those OECD countries which have slowed down increases in the wage bill in the public sector have not done so simply by reforming the pay determination system but also by reducing the volume of employment. These two types of action are closely associated in reducing the rate of increase in the wage bill. However, changes in the wage bill cannot be explained by these variables alone. The analysis has to be improved by testing other variables which may affect changes in the wage bill, such as employment status, productivity, power of the unions, wage differentials between public and private sectors etc.

CONCLUSION Trends in the main aggregates for public sector pay show that the majority of OECD countries have managed to restrain pay bill growth and to control the rate of increase in the remuneration of public sector employees. In most cases this has been accompanied by a reduction in the share of compensation costs in general government final consumption expenditure. Over and above statistical trends, the annual report has endeavoured to highlight the variety of pay determination systems and the movement to reform them which is steadily spreading to take in more and more countries. Quite naturally, the attention of OECD countries focuses first on those governments which have launched thoroughgoing reforms of their pay determination systems. Two aspects are of interest to observers, the instruments used and the results achieved. The former consist largely of delegation of authority for budget and staff management and individual or collective performance-related pay. In that context, central government may wish to retain a degree of control over the volume of the pay bill distributed at agency level, for instance by negotiating a general increase at central level with the social partners, with or without appropriate topping up of the agency’s running cost budget. Full agency self-financing of wage increases - general and individual increases - may inhibit wage drift if local capacity to pay is insufficient, but may also, for agencies achieving substantial productivity gains, call the traditional notion of public service equity into question. The impact of pay policies on observed pay bill trends has been evaluated on the basis of empirical results. The finding is that countries with a decentralised 1106 pay determination system have experienced lower pay bill growth than countries COMPARATIVE ANALYSIS OF PAY DETERMINATION SYSTEMS with more centralised systems, though there are some exceptions here. Empirical analysis has also established that pay bill trends are affected both by the pay determination system and by changes in the number of employees, but that the pay system is slightly more influential than the volume of public employment. The role of reduced public employment in pay bill changes deserves careful attention. Many countries have transferred considerable activity and staff from the public to the private sector. But the fall in public employment that results is usually accompanied by the disappearance of financial resources from those activities which used to accrue to government budgets. Ideally, only redundan- cies should be considered when gauging the impact of public sector employment policy on pay bill trends. The empirical findings suggest that in OECD countries changes in the volume of employment have not in themselves produced significant and lasting changes in the volume of the pay bill. Other variables are involved, including employment status, the strength of trade unions, and pay differentials between the public and private sectors. The empirical analysis provides government decision-makers with a set of explanatory variables for public sector pay bill trends whose significance has already been tested. The need to adjust or reform systems in the light of changing circumstances and a new balance of power between economic, political and social forces is clear from the trends observed. What are the factors calling for change? Do some predominate? The aim in the future will be to provide answers to questions of this kind, inasmuch as it seems clear that the great majority of OECD countries are now engaged in reforming their systems of pay determination and staff management. The recent emergence of a group of countries which have opted for progressive change and are experimenting with a range of instruments supports the view that reform of pay systems is extending into all OECD countries. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

NOTES

I. OECD (I996), fay Reform in the Public Service: Initial Impact on fay Dispersion in Australia, Sweden and the United Kingdom, Public Managmeent Occasional Papers No. 10. 2. For more details, see fay Policy in the Canadian Public Service since 1990, in Annex. 3. Confederation level only; the cantons and communes are excluded from this description. 4. This description deals only with the federal government. 5. Decentralisation means that all or part of the remuneration is set at the workplace (ministry, department, agency, unit etc.). As used in this document, decentralisation does not refer to geographical decentralisation, such as a shift to the regional or local level as opposed to the central level of government. 6. This method is based on a study by C. Lucifora in “Un’analisi della strutura retributiva nel settore pubblico: un confront0 tra paesi OCSE”, in ARAN, Rapport0 sui salari, 1996. Annex 1 DATA COLLECTION OUTCOME TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

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Average gross earnings per capita AAA A A CM M

Actual average gross earnings A A A C A CR A FS

Negociated wages FF A T C A CRM F

Rate of union membership A C M

Number of labour disputes

Number of days of strikes

Median remuneration C F

Deciles or quartiles [remuneration) L

A All levels C Central level only F Federal level only S States M Municipalities R Regional level TRENDS IN PUBLlC SECTOR PAY IN OECD COUNTRIES

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Table A1 bis. National sources

Sources Tables

Australia - ABS, Survey of Major Labour costs 4 bis, A4 bis - Australian Bureau of Statistics, “Employed Wage 1, 2bis, 3bis, A2, A3, A4 and Salary Earners, Australia” (Cat no 6 248.0) - ABS, “The survey of Employee Earnings and Hours” 5, 6, A5. A6 Austria - Austria Central Statistical Office, National Accounts 1, 2, 3, 3bis. 4, 4bis Division - Personalinformationssystem des Bundes A2, A3, A4 - Federal Chancellery, Salary Division 5 Canada

- Statistics Canada, “Public Sector Employment 1 ~ 2 bis. 3bis, 4bis. A2, A3, A4, A4bis and Remuneration” Cat. 72 209 - Statistics Canada, Treasury Board Secretariat A6, 5, A5 Denmark - Ministry of Finance Finland - Ministry of Finance, State Employers Office 1, 2, 2bis. 3, 3bis, 4bis. 5 (average and Community for Local Authority Employers earnings index), A2, A3, A4, A5, A6 - Ministry of Finance, Staff registers 5 (negotiated wages) France - Pay registers survey, Finance laws and national accounts 1. 2, 3, 3bis. 4, 4bis. A2. A3, A4 - Pay registers of state civil servants INSEE/DGAFP 5, 6, A5, A6 Germany - Federal Statistical Office Wiesbaden Iceland - Ministry of Finance 1,2, 3, 3bis, 4, 4bis, A2, A3, A4 - Ministry of Finance, State salary software program 5 Ireland - Department of Finance A1 1 Italy - National Accounts 1, 2, 3, 3bis, 5. A2, A3. A4 - National Accounts and Ministry of Treasury 4, 4bis, A4bis Luxembourg - Pay registers for state employees Mexico - Cuenta de la Hacienda publica federal 1993, 1994 3bis, 4bis. A2. A3, A4bis - Sexto informe de gobierno 1993 5, 6 - INEGI, Anuario estadistico, 1995 AS, A6 Netherlands - Ministry of Home Affairs and state budget (for education 1, 2, 4, 4bis, 5 (average earnings), A2, and defense) A3, A4bis. A5, A6 - Ministry of Home Affairs, “Basis statistics on 6 Government Personnel and salaries” - Netherlands Statistics Agency 5 (negotiated wages) 1121 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table A1 bis. National sources (cont.)

Sources Tables New Zealand - Statistics New Zealand: - Central government survey, Local Government survey 1.2, 3, 3bis, 4, 4bis - Quarterly employment survey 5 (average earnings), A2, A3, A4, A5, A4 - Labour cost index 5 (negotiated wages) Portugal - General direction for public account, and general 1, 2, 3, 3bis. A2, A3. A4 direction for autonomous administration - Laws approval for public service salaries 5 (negotiated wages) - Executive report for new remuneration system 5 (average earnings), A5, A4 - State’s general account and health ministry 4 4bis, A4bis (health) - Ministry of finance, secretary for administrative 4, 4bis, A4bis (education) modernisation - State’s general account 4, 4bis, A4bis (defence) Spain - lntervencion general de la Administracion del Estado 1, 2, 3, 3bis, 4, 4bis - Boletim estadistico del Registro Central de Personal, A2, A3, A4. A4bis Ministry of public administration - Year book of labour statistics, Ministry of Labour 5, A5, A4 and Social Security. Sweden - AgV, National Agency for Government Employers 1. 2, 3, 3bis. 4, 4bis. 5, A2, A3. A4, A4 bis - Statistics Sweden 4 Switzerland - National account and State’s budget A1 I Turkey - Ministry of Finance, General directorate of Budget and Fiscal control United Kingdom - UK National Accounts, blue book I, 2bis, 3, 4 - UK Public Sector employment, Economic Trends A2, A3, A4, A4bis - New Earnings Survey, table XI vol A 5, A5, A4 United States - Bureau of Labour Statistics of the US Department 1, 2bis, 3bis, A2, A3, A4, A4bis, 5 of Labor (average earnings),A5, A6 - US Office of Personnel Management 3, 3bis (federal government), 4, 4bis. A4 (federal government),A4bis (defence) - US Department of Labor, “Employment Hours A4bis (health and education) and Earnings” - US Office of Personnel Management, Pay structure 5 (pay recommendations) of the federal civil service + Figure A I, Share of general government final consumption and expenditure transfers as a percentage of GDP in I994 I

As a % of GDP As a % of GDP 0 Final consumption Social security and others transfers 30 30

25 25

20 20

15 15

10 10

5 5

0 0

I. Or last year available.

1/51 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table A2. Total public employment in thousands* (in full time equivalent unless otherwise indicated)

Changes 1985 1990 1994 1995 over the period"

(YO)

Aust ra 1ia I .. 1 279 1 191 1 208 .. Austria .. 607 528 .. .. Canada1 .. 2 288 2 311 2 275 .. Denmark 682 692 70 1 .. 2.8 Finland3 640 61 1 528 519 -18.9 France4 4 467 4 569 4 279a .. -4.2 Germanyl- 4 118 4 305 4 866 4 737 15.0 Iceland .. 18 1 9a .. .. I rela n d 1 217 196 209 213 -2.0 Italy 3 439 3 628 3 650a 6.1 Luxembourg5 .. 15 14a Mexico I .. .. 822 Netherlands 764 73 1 736 713 -6.7 New Zealand .. .. 208 207 .. Portugall, 6 454 .. 624 .. 37.4 Spain1, 1 532 810 1891 926 25.7 Sweden 1 210 275 1 252 265 4.5 Turkeya 1 357 1 535 1 728 1 727 27.3 United Kingdom9 4 469 4 354 3 930 3 936 -1 1.9 United States' 15 888 17 752 18 463 18 593 17.0

* The employment figures corresponding to the compensation cost presented in the previous tables are presented ill this table. $t Period from 1985 to the last year available. a) 1993. I. Full time and part time. 2. Since 1991. new Lander are included. 3. Excluding State enterprises since 1990. 4. Since 1991, excluding post and telecommunications. 5. Central administration. Since 1991, PGT are excluding, and are now included in the private sector 6. Excluding Azores et Madeira. Before 1992, excluding the military forces and the security forces. 7. Including social security. 8. Central government, i.e. about 90 per cent of the total public service 9. Including NHS trusts. ANNMES

Table A3. Annual changes in public sector employment

~ ~ ~ ~ 1985-1990* 1990 1991 1992 1993 1994 1995

Australia .. 1.1 -1.5 -0.5 -6.1 1.4 Austria .. -2.6 0.0 -8.8 -0.1 .. Canada 2.2 1.8 1.4 -0.5 -1.6 -1.6 Denmark 0.3 0.3 -1 .3 -0.1 1.4 1.3 .. Finland -0.9 -9.6 -0.3 -2.0 -10.5 -0.2 -1.7 France 0.5 0.2 -8.2 0.6 1.4 Germany 0.9 0.7 21.2 -0.9 -3.3 -2.6 -2.7 Iceland 3.9 3.5 0.3 0.0 .. .. Ireland -2.0 -0.1 1.7 I .8 1.7 1.4 2.3 Italy 1.1 0.2 0.4 0.4 -0.2 Luxembourg 2.9 3.4 1.1 -1 1.9 .. .. Mexico ...... -44.7 -0.1 .. Netherlands -0.9 -1.2 -3.1 7.2 -1.1 -2.0 -3.1 New Zealand ...... -3.0 0.8 -0.4 Portugal 2.3 .. .. 28.0 -2.6 -1.4 .. Spain 3.6 3.8 1.9 2.0 0.5 1.8 2.9 Sweden 1.1 1.9 -0.3 -4.8 -6.4 10.5 1.1 Turkey 2.6 5.9 3.8 3.5 2.6 2.2 -0.1 United Kingdom -0.5 0.1 0.1 -0.6 -5.2 -4.4 0.2 United States 2.3 2.8 0.7 1 .o 0.9 1 .3 0.7

* Average changes over the period See Table A2 for footnotes. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table A4. Breakdown of public employment by level of government as % of total public employment (in full time equivalent unless otherwise indicated)

1985 1990 1994 I995

Australia I Commonwealth 15.0 14.6 14.3 State 74.2 73.3 74.0 Local .. 10.7 12.1 11.7 Austria Federa I govern men t 51.0 44.5 .. Lander .. 26.2 28.1 .. Mu n ici pa I it ies .. 22.8 27.4 .. Canada1 Federal administration 17.9 17.1 16.3 Provincial and territorial administration2 63.5 44.1 44.2 Loca I adm i n i st ra t ion2 .. 18.6 38.9 39.5 Denmark Central administration 31.3 29.2 27.1 Local government 68.7 70.8 72.9 Fin land Central government 33.3 24.1 25.2 24.1 Local government 66.7 75.7 74.8 75.9 France Central government 56.3 55.0 48.7a Local government 25.6 26.6 30.7a Health government 18.1 18.4 20.6a .. Germany3 Federal government 22.1 21.6 11.9 11.5 Lander 47.5 46.5 51.0 51.7 Municipalities 30.4 31.9 37.1 36.8 Ireland1 Central administration 85.0 86.5 87.0 87.3 Local authorities 15.0 13.5 13.0 12.7 Italy Central administration 62.9 63.0 63.0a Regional government 21.7 20.9 23.0a Local government 15.4 16.1 1 4.0a New Zealand Central Government .. .. 89.6 89.7 Local government .. .. 10.4 10.3 Portugal' Central administration 82.8 83.8b 86.0 Municipalities 17.2 16.2b 14.0 Spain' Central administration 58.8 50.7 48.2 47.2 Autonomous communities 23.2 29.7 32.5 31.3 1/18 Local administration 18.1 19.6 19.3 21.5 Table A4. Breakdown of public employment by level of government as % of total public employment (in full time equivalent unless otherwise indicated) (cont.)

1985 I990 1994 1995

Sweden Central Government 27.2 26.7 23.9 18.5 Regional administration 26.9 27.8 23.7 59.8 Local government 45.9 45.5 52.3 21.7 United Kingdom Cent ra I Govern men t 48.0 47.7 47.7 48.1 Local authorities 52.0 52.3 52.3 51.9 United States Federal government 19.2 18.1 16.3 15.9 State 22.1 22.4 22.6 22.6 Local government 58.7 59.5 61.1 61.5 a) Breakdown for 1993. b) Breakdown for 1989. I. Full time and part time. 2. The school board is included in municipalities; previously it was included in Provinces. 3. Since 1991. new Lander are included. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Table A4bis. Breakdown of public employment by functional sub-sectors as % of total public employment (in full time equivalent unless otherwise indicated)

1985 I990 1994 1995

Australia I Health 26.0 26.2 .. Education 34.7 34.4 .. Social 0.8 2.1 .. Administration 29.3 27.7 .. .. Others 9.2 9.7 .. ..

Canada1 Health .. 27.2 26.8 Education .. 26.8 28.1 Police .. 13.9 13.4 Search .. 0.5 0.4 Social .. 4.7 4.9 Cu I ture .. 3.7 3.6 .. Administration .. 12.1 12.5 .. Others .. 11.1 10.3 .. Germany2 Health 8.4 8.2 9.2 Education 20.3 18.8 29.0 Police 7.3 7.3 .. Defence 4.2 3.8 7.7 .. Others 59.9 61.9 .. ..

Iceland Health .. 12.5 1 3.0a Education .. 25.0 25.9a Police .. 3.6 3.4a .. Others 58.8 57.7a ..

Ireland (central government)' Health .. 33.9 34.0 34.3 Education .. 30.6 31.1 30.8 Police 6.4 6.3 6.1 Defence 7.6 7.0 7.0 Civil service 15.1 15.3 15.6 Others 6.3 6.3 6.2

Italy Health 17.5 17.8 1 8.6a Education 32.9 32.2 32.8a Police 7.0 7.6 8.4a .. Defence 3.3 3.6 3.6a .. Others 39.2 38.9 36.6a

Luxembourg (central government) Education .. 29.3 34.1a Defence .. 7.6 8.9a .. Administration .. 43.6 38.3a .. 1120 Others 19.4 18.7a .. ANNMES

Table A4 bis. Breakdown of public employment by functional sub-sectors as % of total public employment (in full time equivalent unless otherwise indicated) (cont.)

1985 1990 I994 1995

Mexico' Health .. 18.0 .. Education .. 30.7 .. Defence .. 21.3 .. Agriculture .. 7.6 .. Others .. 22.3 ..

Netherlands Education 31.3 32.6 40.1 42.7 Police 4.0 4.2 5.6 5.9 Defence 13.5 14.3 13.7 10.5 Judiciary 0.2 0.2 0.3 0.3 Polders Boards 0.9 1 .o 1.1 1.1 Ministries 19.4 18.9 14.0 13.8 Municipalities 26.0 24.3 21.2 21.6 Provinces 2.2 2.0 1.7 I .6 Intercommunal 2.2 2.0 2.4 2.5 Associations

Portugal I Health .. 15.6 Education .. 33.7 Defence .. 9.6 Others .. 41.1

Spain' Health .. 16.1 15.2 Education .. 18.5 18.2 POI ice3 .. 6.2 6.2 Defence .. 3.9 4.1 University .. 32.4 4.1 Ministry .. 4.1 30.7 Others .. .. 18.8 21.6

Sweden Health 22.9 23.7 1 9.0a Education 9.9 9.4 10.0a Police 2.1 2.0 2.2a Defence .. 3.1 3.3a Public utilities 6.0 7.4 8.0a University 2.7 2.4 3.1a Others 56.5 52.0 54.4a

Turkey (central government)' Health .. 10.2 11.4 11.2 Education .. 37.3 37.1 37.2 Defence .. 7.8 8.0 9.6 Police .. 7.0 9.3 8.7 37.7 34.2 Others .. 33.4 121/ TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRES

Table A4bis. Breakdown of public employment by functional sub-sectors as % of total public employment (in full time equivalent unless otherwise indicated) (cont.)

1985 1990 1994 1995

United Kingdom Hea I t h4 23.0 23.2 24.2 24.3 Education 22.8 22.7 20.8 20.5 Police 4.1 4.5 5.1 5.1 Defence 11.9 11.0 10.1 .. Others 38.1 38.7 39.8 .. United States' Health 8.2 7.3 7.3a .. Education 43.3 43.8 44.9a .. Defence 6.7 6.0 5.2a .. Others 41.7 42.9 42.6a ..

a) Breakdown for 1993. 1. Full time and part time. 2. Full time only. 3. Excluding autonomous police forces 4. Including NHS Trusts.

I122 Table A5. Annual gross average earnings in public and private sectors (in national currency)

I987 1988 1989 I990 1991 1992 1993 1994 1995

Australia ($A) Public sector' 22 646 24 293 26 191 27 693 29 184 30 796 31 745 .. Private sector 18 828 20 080 21 640 23 518 24 327 24 760 25 647 .. .. Canada (Can$) Public sector 31 542 32 028 34 936 37 203 37 690 39 353 40 589 .. .. Private sector' 22 945 23 873 25 127 26 366 27 498 28 331 28 428 .. .. Denmark (DKe) 2 Public sector 190 203 202 494 208 545 214 002 220 100 227 705 233 142 238 259 .. Blue collars ...... 198 500 20 520 211 400 216 000 225 100 .. White collars ...... 248 892 257 784 264 888 271 284 279 965 .. Finland (Fmk) Public sector' 83 875 91 780 97 640 107 556 114 483 1 I7 8935 119 767 121 442 .. Private sector ...... 103 226 110 260 1 I3 4795 114 852 117 816 .. France (FF)3 Public sector4 .. 103 767 109 114 14 402 121 670 27 220 132 360 134 750 39 500 Senior managers .. 163 460 171 696 76 829 174 820 79 480 182 690 181 420 83 750 lntermediary professions ...... 10 890 113 020 16 140 119 530 120 540 23 550 Blue collars .. 76 655 80 620 82 913 84 190 85 920 82 7306 84 870 87 540 White collars .. 77 119 81 776 85 071 93 060 97 790 96 850' 98 840 02 260 Private sector .. 100 200 103 700 09 300 1 I4 400 17 470 120 350 122 160 24 720 Senior managers .. 215 700 222 400 232 100 242 900 244 810 248 120 248 600 251 050 lntermediary professions .. 115 200 118 700 124 700 128 900 128 970 130 730 131 890 134 470 Blue collars .. 76 600 78 900 83 100 85 800 86 500 87 960 88 820 90 130 White collars .. 76 200 78 600 82 800 85 700 87 410 88 780 89 930 91 950 Mexico (Pesos) Public sector 2 373 4 634 5 844 7 606 9 643 11 998 13 799 .. Private sector 3 740 7 179 9 606 12 722 16 673 21 820 26 057 .. Netherlands (f) Public sector' 50 000 52 000 54 600 56 000 58 900 61 700 63 600 64 800 65 580 Private sector 45 800 46 500 47 400 49 500 51 200 .. 55 300 .. .. Table A5. Annual gross average earnings in public and private sectors (in national currency) con t.1

I987 1988 I989 1990 1991 I992 1993 I994 1995

New Zealand (NZ$) Public sector' ...... 32 730 33 127 33 415 34 267 Private sector ...... 28 260 28 990 29 303 30 241 Primary and secondary sectors ...... 29 563 30 398 30 763 31 962 Services ...... 27 530 28 156 28 416 29 198 Portugal (Esc) 2 Public sector .. .. 2 170 000 2 338 000 .. Private sector 1 111 000 1 264 000 1 346 000 1 427 000 .. Spain (Ptas) Public sector4 .. 1 931 000 2 075 000 2 245 000 2 467 000 2 679 000 2 773 000 Private sector 1 457 532 1 544 616 1 633 356 1 772 916 1 906 956 2 050 488 2 180 904 Blue collars 1 21 1 904 1 272 528 1 322 508 1 435 104 1 539 564 1 645 032 1 739 124 White collars 1 855 284 1 971 900 2 129 340 2 304 444 2 461 236 2 633 664 2 763 816 United Kingdom (€) Public sector] 10 000 11 048 12 149 12 800 14 750 16 064 16 789 17 247 17 581 Private sector 10 412 II 445 12 587 13 859 14 881 15 823 16 449 16 914 17 535 United States (US$) Public sector2 22 603 23 024 24 094 25 361 26 566 27 628 28 495 29 202 29 956 Private industry 20 621 21 650 22 269 23 258 24 178 25 547 25 934 26 494 ..

1. Effective average gross earnings. 2. Average gross earnings per capita. 3. Annual net average earnings. 4. Central government. 5. Structural change. 6. New classification, old data: 87 820 FF. 7. New classification, old data: 101 050 FF Table A6. Pay differentials in public and private sectors*

1987 1988 1989 1990 1991 1992 1993 1994 1995

Australia 1.20 1.21 1.21 1.18 1.20 1.24 1.24 ..

Canada 1.37 1.34 1.39 1.41 1.37 1.39 1.43 .. ..

Finland ...... 1.04 1.04 1.04 1.04 1 .03 .. France Total .. 1.04 1.05 1.05 1.06 1.08 1.10 1.10 1.12 Senior managers .. 0.76 0.77 0.76 0.72 0.73 0.74 0.73 0.73 Intermediary professions .. .. 0.89 0.88 0.90 0.9 1 0.9 1 0.92 White collars .. 1 .oo 1.02 1 .oo 0.98 0.99 .. 0.96 0.97 Blue collars .. 1.01 1.04 1 .O? 1.09 1.12 .. 1.10 1.1 1

Mexico 1.57 1.55 1.64 I .67 1.73 1.81 1.89 .. ..

Netherlands 1.09 1.12 1.15 1.13 1.15 .. 1.15 .. ..

New Zealand ...... 1.16 .I4 1.14 1.12

Portugal ...... 61 1.64 ..

Spain .. 1.25 I .27 1.27 I .29 1.31 .27 .. .. United Kingdom 0.96 0.97 0.97 0.92 0.99 1.02 .02 1.02 1 .oo United States 1.10 1.06 1.08 I .09 1.10 1.08 1.10 1.10

See Table A5 for footnotes. * Ratio: gross average earnings in the public sector/gross average earnings in the private sector, except for France: net average earnings.

ANNUES

Annex 2 PAY POLICY IN THE CANADIAN PUBLIC SERVICE SINCE 1990

INTRODUCTION The Treasury Board Secretariat (TBS) administers public service staff who, at the end of 1995, numbered just over 220 000 employees. It acts as an employer and takes part in that capacity in the collective bargaining that is organised in the public service. It is responsible for matters of compensation, classification, training, etc. Responsibility for recruitment, however, lies with the Public Service Commission, so as to avoid patronage appointments based on political affilia- tions. The modernisation of the public service that was launched by the federal government in the late 1980s, together with a determination to improve services (as set forth in 1990 in the White Paper on Public Service 2OOO), have brought about structural changes in the workforce and changes in job contents. To incorporate transformations in working methods (and anticipate others to come), the TBS would like to introduce a classification system that more reflects the value of individual employees and what they can offer the public service, the problem being that such an approach is hindered by legislative provisions that tend to limit its flexibility. Even so, overhauling the job classification system remains an extremely important issue, and one that will have many repercussions - on the size of the pay bill and pay bill trends, on wage levels and differentials and on career paths, but also on the industrial relations system. The system likely to come on stream in early 1997 would institute a single classification standard, compared with more than 70 currently in use. As a result, a limited group of bargaining units would be represented on the employees’ side of the negotiating table. Moreover, the pay levels that will provide the basis for the collective bargaining that has been suspended since 1991 have yet to be determined. The cost of labour is an important issue whose relevance has been height- ened by other dysfunctions that have come to light over the years. The sizeable differential in average pay levels between the public service and the private /271 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

sector (with those in the public service being 40 per cent higher), strengthens the internal labour market within the public service. Substantial variations in pay levels from one province to another, across the entire economy, create distor- tions. Difficulties in recruiting qualified people for federal services are encoun- tered in provinces in which private sector wage levels are higher. Conversely, in provinces where the private sector pays less, public service pay levels annoy private employers. To date, the Canadian public service did not intend to develop an approach to pay determination systems that factors in either labour market strains or staff performance at an individual or group level. The Universal Classification Standard (UCS) is aimed to introduce a personnel management system in line with recent public service developments and general national context. Greater flexibility in the UCS, compared to that of the current job classification system, would be likely to bring a reduction in the total pay bill and to improve efficiency in running costs budget management on the medium term.

REFORMING THE JOBCLASSIFICATION SYSTEM IN THE FEDERAL PUBLIC SERVICE Background Since the late 1960s, federal public servants have been classified into occupational groups that cover the entire government, not just individual departments. In the beginning, this structure had been adopted essentially for negotiating purposes. On the employer’s side, all government departments and other federal bodies are represented by the Treasury Board, which does in fact max- imise uniformity of treatment for all staff performing the same tasks. The aim of this approach was to ensure that pay was fair and to avoid barriers to mobility within the federal public service. There are five broad occupational groups (scientific and professional, administrative and foreign services, technical, administrative support and operational) which are in turn subdivided into 72 occupational groups. Collective bargaining takes place in 79 distinct negotiating units - some occupational groups have more than one negotiating unit - which are represented by 16 staff unions. Each occupational group has its own classification structure and its own salary scale. Classifi- cation systems are based on techniques for evaluating posts, not individuals. Until now, the government’s policy on job classification has clearly been to provide a post-related method of evaluation. It has delegated classification authority to government departments, while keeping the system uniform. Accord- ingly, the Treasury Board must be consulted on any classification decision that can have serious repercussions on the relative positions among departments or 1128 on collective bargaining. ANND(E.5

Evaluation systems must necessarily abide by the principles laid down in the Canadian Human Rights Act (CHRA), which stipulates that a post must be evaluated in terms of the skills, effort, responsibilities and working conditions it entails. The Act thus provides a legal framework whereby predominately female occupational groups can obtain redress for unequal pay. It requires federal employers to pay equal wages to occupational groups which are primarily of one sex and whose work is of equal value to those primarily of the other sex, even if the work performed is different. The principle that jobs are relative requires that evaluations be updated every three years. Employees have recourse to a grievance procedure if they disagree with the evaluation of their own jobs. Some government departments have less power to delegate than others in respect of classifications, job descriptions and evaluations of posts that require trained, skilled personnel. Initial retraining costs are covered by a retraining fund, but any government department in which costly changes take place must be prepared to absorb the additional expense. The system’s effectiveness and capacity to respond to developments in the federal public service were called into question in the early 1990s. The main criticisms levelled against it can be summed up as follows: the benchmark posts used to describe work content are not always appropriate for the purpose of illustrating particular points in the evaluation grid; there are no links between the various groups; the job description format refers specifically to each group or subgroup; it is not possible to establish links with budgeting or planning systems; many types of evaluation techniques (factor comparison system, grade description system, point system) are used in the various groups and subgroups; and lastly, such a classification system is conducive to vertical organisational structures.

Simplifying the classification system: PS 2000 In 1990, the White Paper on Public Service 2000 defined conditions for improving services. To this end, greater power was to be delegated to managers, and staff were to produce a wider range of products. In this context, it was important to take account of staff training and to incorporate new technologies into the work process. As a result, there would be fewer intermediaries between traditional managers and the employees delivering the products. Staff reductions in the federal public service and the privatisation of numerous functions contributed to the tide of restructuring within government departments and made it necessary to revise many job evaluations. It became increasingly hard to maintain relative positions between departments, and changes in the workplace made it difficult to apply the existing classification system. 129) TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

The federal government also wanted to re-examine the system of internal comparability whereby, each time the pay of a designated reference group was raised in application of a collective bargaining agreement, it triggered rises for a succession of other groups without their having to negotiate. Pay equity has created a situation where internal comparability can generate pay increases for female-dominated groups when male-dominated reference groups negotiate new collective agreements, without collective agreement or external comparability. In the end, the current system was deemed too rigid, too complex and too costly. As such, it stood in the way of the federal government’s determination to cut the payroll and reduce operating costs, bolster flexibility in managing costs and staff numbers, and focus more on service.

The federal government sought to devise a simpler, more uniform classification system and a universal evaluation scheme devoid of any discrimination on the basis of sex. In 1990, the report of the Public Service 2000 working group on classifications laid down principles by which to simplify the system in force: a) by formulating and implementing a universal job evaluation plan (UJEP)and a universal classification standard (UCS); 6) by simplifying the structure of occupational groups; and c) by allowing parallel career paths.

The goals of the new system are to create a workplace conducive to productivity; ensure equal pay for equal work, internal relativities and external comparability; enhance career opportunities; guarantee the system’s simplicity and flexibility; broaden the scope thanks to a cut in the number of levels; and get management more fully involved. The project was to be carried out over a period of seven years (1991-97), the first two of which would be needed to formulate the Universal Job Evaluation Plan, simplify the structure of occupational groups and establish the Universal Classification Standard. The following five years were to be devoted to implementing the universal standards for the new occupational group (GE) and for all others.’

Development of the Universal Classification Standard

The Universal Classification Standard (UCS) will make it possible to assess the relative value of all public service jobs below the assistant deputy minister level (or the equivalent), i.e. for all posts except those of senior public servants (Executive group - EX). At each stage in the development process, the standard was tested to make sure that it was, in fact, universal. Each of the tests showed that the standard could be used to assess the work characteristics of all existing 1130 occupational groups and that its criteria applied universally to all jobs. ANN€X€S

Descriptions were drawn up for a sample of one thousand jobs, providing the basis for the following classification criteria: - knowledge and skills; - discernment; - repercussions; - responsibilities as regards resources; - communications; - working conditions; - risks; - physical demands; - sensory/mental demands. These criteria were tested against a selection of 300 posts representative of the public service, using the pair comparison method. In preparation for PS 2000, a working group made direct comparisons to ascertain which post was higher than the other. The other comparisons were made by computer.2 In all, 40 000 comparisons were made, including 12 000 direct ones. Thresholds of significance in the differences between posts made it possible to establish different degrees, which were illustrated by examples. An outline plan was sent to all government departments, which were asked to evaluate 25 per cent of GI grade (general services) staff, or some 55 000 posts. The standard was deemed workable, although lacking in precision and illus- trations. However, the Human Rights Commission was critical of the choice of criteria, judging that characteristics relating to women were not sufficiently in evidence. For example, while the factor “care and responsibility” was most often associated with women’s jobs, the standard offered no criterion for measuring the responsibility inherent in the fact that a secretary can be privy to sensitive information. The way working conditions - a criterion listed especially for men’s occupations - were taken into account was also considered unsatisfactory, since in many cases these were factored in twice: once for job evaluations and again for allowances. It was therefore necessary to overhaul the weighting of working conditions in relation to other criteria. For their part, trade unions levelled no particular criticism at the project, aside from the points mentioned above. It was decided to institute an adjustment phase, so as to incorporate the comments of the parties consulted, i.e. the Auditor General, trade unions, the Human Rights Commission and government departments. A number of elements were to be amended or redefined, and criteria of universality simplification and non-segregation on the basis of sex had to be validated. To this end, a technical committee and an advisory committee were created, respectively to handle technical aspects and intervene on policy matters. 1311 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

In order to put the emphasis on service delivery and results rather than on work process, 16 elements3 were defined and grouped into four factors (service provision); care and responsibilities; working conditions; and knowledge and skills), in line with the requirements laid down by the Canadian Human Rights Act (see above). The UCS is based on a single evaluation structure and uses a common job description format, which is divided into three main parts: - client service result: description of the expected results of the work assigned (products, services or some combination of the two); - key activities: a list of activities that are crucial to obtaining the desired resu 1ts ; - substantiating data for each of the 16 elements, specifying the demands and conditions arising from the key activities. In December 1995, Treasury Board ministers approved the UCS in principle, allowing work to be completed and trials begun. Once these intermediate steps are finished, at the beginning of the 1996-97 fiscal year, ministers will be asked to approve and implement the new universal standard. Before that decision is taken, however, the TBS must check out the inherent costs of conversion. with regard to costs, it is felt that savings can be achieved after five years, assuming a constant workforce. Even so, imponderables, such as collective pay bargaining, have to be taken into consideration. In fact, the introduction of the new system is expected to coincide with the suspension of the pay freeze put into effect in 1991, and with the start of a new round of negotiations. Uncertainties remain with regard to trade union representation - negotiation of a single scale would imply a cut in the number of occupations taking part in the talks -, the pay levels to be used as the basis for negotiation, and the treatment accorded to post-related allowances which, until now, have been included in basic salaries.

REDUCTION IN FEDERAL PUBLIC SERVICE STAFF EXPENDITURE SINCE THE EARLY 1990s Since I99 1, the Canadian Government has carried out a series of measures to cut the volume of federal public service staff expenditure. These have included direct action on the size of the pay bill, such as wage freezes and staff cuts, as well as budget management measures.

Pay policy The period between 1991 and 1997 is notable for a suspension of collective bargaining, though in February 1992 a 3 per cent pay rise was granted by the 1132 authorities unilaterally, without prior negotiations. These austerity measures were ANNEXES

further intensified by a suspension of step increases between June 1994 and June 1996. The next pay negotiations, to begin by February 1997, are still shrouded in uncertainty, inasmuch as they will take place against a backdrop of budget restrictions, and nothing is known about the unions’ initial demands or what employers will propose. In addition, not all of the occupational groups involved in the negotiations struck their previous agreements at the same time, the maximum differential being eighteen months. This means that in 1991, when the budget restrictions were imposed, certain employees - those belonging to the first groups to have signed agreements - found themselves at a disadvantage in terms of purchasing power, compared with those who had settled several months (and in some cases more than a year) later. The first to have been affected by the restrictions will naturally be the first to be free of them, and they will probably make higher wage claims. A lot is at stake, since the first agreements to be reached after the freeze may well influence the size of subsequent rises for the other groups.

Operating budgets In order to promote change and renewal in the public service, the government decided that, from April 1993 and throughout the federal administration, operating budgets would be instituted for each programme defined in the budget. This measure constituted an important change in the way departmental resources were administered and, in particular, made it possible for staff numbers to be managed on a decentralised basis. Beginning in April 1993, operating budgets were drawn up on the basis of total expenditure and therefore included salaries, training costs and secondary capital outlays. This practice allows managers to decide what combination of resources would be optimal for achieving the desired results and meeting the needs of the public. As regards workforce management, person-years are no longer either appor- tioned or monitored by the Treasury Board, except for the category of senior officials, who remain under its control. Government departments are responsible for all staff costs other than those expressly covered by the Treasury Board (maternity allowances, leaving allowances, the costs of restructuring classification standards, and exceptional compensation expenses such as equal-pay allowances). Moreover, the costs of certain social benefits (e.g. pensions and contributions to insurance against unemployment, disability, illness, etc.) are not incorporated into the operating budgets of government departments. This practice has been maintained, but “transfer prices” are applied. For every new person hired, there must be corresponding savings equal to 20 per cent of actual pay to offsetthe costs borne by the Treasury Board. Conversely, any reduction in the pay 1331 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

bill that transfers appropriations to other expenditure confers a credit of 20 per cent of the saving achieved. In the past, the Treasury Board would customarily adjust the total pay bill on the basis of negotiated salary increases, while other operating expenses were not aligned on the cost of living. Under decentralised management of operating budgets, the authorities’ ability to pay is to be factored into the inflation-adjustment mechanism. Until the 1994-95 fiscal year, only that portion of the budget that corresponded to the pay bill was adjusted in line with the rate of inflation. Expenditure had been divided between pay and other operating expenses on the basis of 1992-93 figures, and even if government departments - exercising their options under the decentralisation of operating budgets - changed those proportions in subsequent years, the Treasury Board did not take those changes into account in readjusting budgets. The Board did, however, plan to revise its budgeting procedure as from 1995-96, introducing a coefficient of adjustment to be applied to all items of expenditure, without distinguishing between pay and other operating expenses. Another amendment was that, at the end of the year, unspent appropriations (of up to 2 per cent of the operating budget) could henceforth be carried forward to the following year, whereas, in the past, the impossibility of carrying appropriations forward encouraged administrators to use up all of their remaining funds by the end of the year. Lastly, the adoption of operating budgets has not exempted administrators from having to apply a number of principles, such as merit, collective bargaining agreements, fair employment programmes, etc. Further cost-cutting measures were adopted in 1992-93 and 1994-95. Among them were workforce reductions, military base closures and a freeze on external hiring. On this last point, however, exceptions were granted: if a post could not be filled through internal recruitment, it could be advertised on the external labour market. Overstaffing levels were determined department by department. In the 1995-96 budget, the government announced its intention of doing away with posts that had been identified as supernumerary but not yet eliminated, and it proposed a package of accompanying measures - an Early Retirement Incentive Program (ERI) and an Early Departure Incentive (EDI) Program. As of 3 1 Decem- ber 1994, 14 government departments and public service bodies were designated as being “most affected”, because they had not been able to meet their fiscal objectives under the 1991 Work Force Adjustment Directive. For the fiscal years 1995-96 through 1997-98, the government decided to conduct a thorough review of all programmes, with a goal of cutting operating budgets by Cs2.5 billion over three years. These savings will involve the elimination, privatisation or devolution of 45 000 federal public service jobs, along with special incentive programmes for voluntary departures (see Appendix 6 for a j134 description of those schemes). Statistical overview Table 1 shows expenditure on federal public service programmes for the fiscal years 1994-95 through 1998-99. It is projected that total outlays will decline by 1 I per cent in five years, mainly thanks to cutbacks in transfers to the provinces as from 1996. The amount of subsidies and other transfers is to fall continu- ously over the entire period. Transfer payments to individuals will continue to rise, any reductions in this item of budget expenditure having to be decided by the legislative branch. Lastly, defence spending will dip only moderately, despite the decision to close a number of military bases.

Table 1. Program spending C$ billion

1994-95 1995-96 1996-97 1997-98 1998-99

Major transfers to persons Elderly benefits 20.5 21.2 21.9 22.8 23.8 Employment insurance 14.8 13.5 13.8 14.2 14.5 Total 35.3 34.7 35.7 37.0 38.5 Transfers to other levels of government 26.7 26.6 23.0 20.6 20.2 Subsidies and other transfers 20.0 17.6 15.5 14.0 13.3 Crown corporations 5.0 4.4 4.2 3.9 3.8 Defence 10.7 10.3 9.8 9.1 8.5 All other spending 21.0 20.1 20.8 21.4 21.4 Program spending 118.7 113.8 109.0 106.0 105.5

Source: TBS.

There are no separate medium-term projections for staff expenditure, inasmuch as the object is to trim operating budgets by Cs2.5 billion overall (all programmes combined). Table 2 presents annual employment and pay bill figures for the federal public service from 1984-85 through 1995-96. Employment

Table 2. Pay bill and employment in the federal public service

1984-85 1990-9 I 199 1-92 1992-93 1993-94 1994-95 1995-96

Employment 240 180 234 554 236 613 237 613 232 307 225 220 211 679 Pay bill (C$ million) 6,750.9 8,552.6 9,239.6 9,239.6 9,244.0 9,060.1 8,541.6

Source: STB. l?Cl TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

dropped by 12 per cent over the period as a whole, although it will be noted that there was a succession of three or four years cycles showing increases and decreases in the workforce, and that it was only from 1993-1994 that it began to shrink. In contrast, the pay bill continued to rise until 1994-95, despite a pay freeze and a suspension of step increases (imposed from 1991 and 1993 respectively). Apart from the 3 per cent general pay increase awarded in February 1992, the rise was attributable to promotions, applications for adjustments under legislation on equal pay for men and women, and outside recruiting. A breakdown of overall wage expenditure shows that indirect costs declined from 33.84 per cent of total outlays in 1990-91 to 26.61 per cent in 1994-95. In fact, the decrease stems from a change in the way pensions are calculated and con- ceals rises in other components of indirect wage costs. Hours paid but not worked rose slightly as a percentage of total hours paid between 1990-91 and 1994-95 (from 20.19 to 20.68 per cent). Of this, 4.35 per cent was for the daily breaks provided for under collective bargaining agreements. Since April 1995, federal public service workforce trends have been monitored quarterly. Between April and December 1995, there was a substantial, 5.8 per cent drop in the number of employees with indefinite contracts, while over the same period, interim staff and staff with fixed-term contracts fell by 22.7 per cent. Details of the five incentive programmes for voluntary departures - the Early Retirement Incentive Program, the Civilian Reduction Program, the Work Force Adjustment Directive, the Executive Employment Transition Policy and the Early Departure Incentive - are presented in an Appendix. All these departure incentives will inevitably have an impact on average pay levels. with the departure of the oldest employees (who are probably earning the highest salaries) offset by the elimination of the lowest-skilled jobs, average pay over the first six months will be pushed up only slightly, but the trend will intensify over the next three years. Once the impact of the early departure programmes has subsided, the move to do away with the lowest-skilled jobs will be the only factor affecting average pay levels.

Recent pay trends in the public service and in the economy at large The institutional system of pay determination that has been in force in the federal public service for decades, together with certain legislative provisions, were instrumental in creating discrepancies in the levels and growth rates of staff compensation between the public and private sectors. A series of factors further accentuated differences in the ways in which public and private labour markets operated: the ‘equal pay for equal work‘ principle carries more weight in the public service; the job classification system tends to produce a more uniform 1136 wage structure in the public service, thereby lessening the ability to reflect labour market pressures; and the existence of regional differences in the pay of federal public servants has diminished. The Canadian economy has undergone structural transformation, and, in particular, not all regions have shared equally in the fruits of economic growth. Some regions, in which the number of federal employees is high compared to other regions, were especially hard hit by the recession, which further widened the pay gap between the public and private sectors. Despite the public service pay freeze that began in 1991 and is to end in February 1997, the average pay differential between the public service and the private sector widened over the past five years, to 40 per cent in 1995.4 In comparison, the ratio is roughly the same in the United States, but it is far lower in Australia (24 per cent) and in France (10 per cent), whereas in the United Kingdom the gap is in favour of the private sector. The other important point is that, between 1989 and 1995, average pay rose faster in the public service than in the private sector, even though government wages were frozen for part of that time and collective bargaining was suspended, which was not the case in the private sector. Table 3 presents the main results in the two sectors. The fact that annual average effective earnings in the public service has risen far faster than negotiated pay rates reflects a relatively substantial wage drift phenomenon at the beginning of the reference period, which tapered off gradually until 1995. In point of fact, it was structural factors affecting the public service workforce that caused average effective compensation to rise. The make-up of the workforce has changed considerably, since in 1990 operatives and workers accounted for nearly half of all employees, but by 1995 the proportion of these categories - the lowest paid, since they were earning respectively 33 and 20 per

Table 3. Annual changes in negotiated pay rates, ' average effective earnings and consumer prices

1990 1991 1992 1993 1994 1995 1995/90

Negotiated pay rates Public service 4.80 0.40 2.80 0.20 0.00 0.00 8.40 Public sector 5.60 3.40 2.00 0.50 0.00 0.50 12.4 Private sector 5.70 4.20 2.50 0.90 1.20 1.40 18.9 Total economy 5.60 3.60 2.10 0.60 0.30 0.90 14.3 Increase in annual average effective earnings Public service 7.7 3.3 3.2 3.0 1.4 0.5 11.9 Total economy 4.9 4.4 3.2 0.8 2.0 1.1 10.8 Consumer prices 4.8 5.6 1.5 1.8 0.2 2.3 11.7

Source: Statistics Canada. I371 TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

cent below average - had fallen to only 40.7 per cent. The reduction in the number of employees hired on fixed-term contracts also had an effect on average pay, since such workers are usually paid significantly less. Lastly, promotions and regradings are always meaningful contributors to the rise in average earnings, even at times of staff reductions and wage re~traint.~ Early 1997 will be a crucial period indeed for public service pay policy. In particular, the government would like to approach collective bargaining from a new angle, especially since over the past ten years, faced with trade union intransigence, they have generally legislated rather than negotiated. Even though declining purchasing power has affected the entire population since the beginning of the 199Os, federal government employees will be keen in future negotiations to make up for their own loss. Moreover, structural transformations have altered relativities within the public service and, at the same time, relativities to outside employment have changed at a different pace. It is not certain that the government will be able once again to guarantee the public service’s relativities to the private sector. Moreover, the problem of staff allowances not included in basic salary will be up for negotiation. In the past, such allowances were negotiated separately with the unions; now they will be part of an overall budget, meaning that if the unions want certain allowances to go up, others will have to be cut. While negotiations on basic salaries will remain centralised, negotiations on the overall amount of allowances will be decentralised by government department. The introduction of a new job classification system is a major step forward toward a modern and flexible system of human resource management. It takes into account specific pressures on professional and local labour markets, and alleviates legislative restrictions imposed on the current system. The main challenge facing the TBS is to ensure that the system functions properly, and in particular, to establish a new dialogue with the unions in the new environment where the TBS will bargain with a limited number of unions, rather than a large range of unions, as they have in the past. The reform of the pay determination system, which may appear on the surface as a means to recentralise the pay setting process, actually establishes the groundwork for a system of decentralised management covering the entire operating budget - not just limited to the number of workers In this context, a uniform job classification system would assure equal treatment among workers, while the centralised level of pay bargaining would provide government with the opportunity to exercise control upon, or less importantly, over the pay bill or pay levels. Moreover, the Australian authorities proceeded with classification reform in such as way as to change the pay determination system in the APS. PAY POLICY IN THE CANADIAN PUBLIC SERVICE SINCE 1990

NOTES

1. The new structure of occupational groups is presented in Appendix 1. 2. See presentation of the EXCLASS Project in Appendix 2. 3. See Appendix 3 for a list of the elements contained in each factor. 4. In addition to structural and occupational differences in the federal public service workforce compared to that of the private sector, it should be specified that the weekly working time is higher in the federal public service than in the private sector. 5. To neutralise these structural factors that weigh upon the total pay bills, France has adopted an original system for computing general pay increases in the public service: the increase granted corresponds to the entire pay bill increase, which is therefore inclusive of al promotions, length-of-service rises, and recruitment and departure flows. Purchas- ing power is not taken into account, or only partially. As a result, it is possible for both the pay bill and compensation to go up, even though some employees - the ones receiving no promotions - see no increase in their own pay.

Appendix 1 NEW OCCUPATIONAL GROUP STRUCTURE TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Appendix 1. New occupational group structure

New Occupational Group New Occupational Subgroup Existing Occupational Group

General Services Financial Management Financial Administration Purchasing and Supply Purchasing and Supply General Services Administrative Services Clerical and Regulatory Communications Data Processing Information Services Office Equipment Program Admin ist rat ion Secretarial, Stenographic and Typing Welfare Programs Management Trainee Management Trainee MediationKonciIiation PM-MCO Human Resources Management Organisation and Methods Personnel Administration Foreign Service Foreign Service Translation Translation Operational Operational General Services Hospital Services Architecture and Engineering Architecture and Engineering Architecture and Town Planning Engineering and Land Survey Patent Exam inat ion Patent Examination Health Care Health Care Home Economics Nursing Occupational and Physical Therapy Psycho I ogy Social Work Pharmacy Dentistry Dentistry Medicine Medicine Science Agriculture Biological Sciences Chemistry Forestry Meteorology Physical Sciences Scientific Regulation Technical Drafting and Illustration Engineering and Scientific support General Technical Photography Primary Products Inspection Technical lnspection , 142 Air Traffic Safety Air Traffic Control APPENDIXES

Appendix 1. New occupational group structure (cont.)

New Occupational Group New Occupational Subgroup Existing Occupational Group

Radio Operations Radio Operations Aircraft Operations Aircraft Operations

Auditing Auditing Commerce Commerce Computer Systems Computer Systems Correctional Service Correctional

Education Education Education Educational Support University Teaching University Teaching Electronics Electronics Social Science Economics, Sociology Economics, Sociology and Statistics and Statistics Social Science Support Social Science Support Mathematics Mathematics Actuarial Science Actuarial Science

Research Scientific Research Defence Scientific Service Scientific Research Historical Research Historical Research Library Science Library Science Law Law Printing Operations Printing Operations Printing Operations Printing Supervisors Operational Ships’ Crews Ships Crews Ships’ Repair (East) Ship Repair Ships‘ Repair (West) Chargehands Skilled Trades General Labour and Trades Heating. Power and Stationary Heating, Power and Stationary Plant Operation Firefighters Firefighters Lightkeepers Lightkeepers Ships’ Officers Ships’ Officers Veterinary Medicine Veterinary Medicine TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Appendix 2 THE EXCLASS PROJECT

Since April 1991, the Treasury Board Secretariat has been developing an Artificial Intelligence (AI) system to support the job classification function within the federal Public Service. The project, know as EXCLASS (expert job evaluation system) would serve to achieve an automated system with the following objectives: - To merge and automate the job description and evaluation processes of the classification function in order to provide managers with a tool to deliver classification decision in a more effective and timely manner. - To facilitate the production of comprehensive job descriptions. - To ensure consistency and relativity in the evaluation of positions across the federal Public Service. The EXCLASS Project has a two-year schedule of activities after which a decision will be made regarding further development work and/or implementation in a pilot project. During this two-year period, two Canadian firms will present a number of prototypes which will serve to demonstrate stages of developing the project and to obtain feedback from the participating departments. APPENDIXES

Appendix 3 FACTORS AND ELEMENTS

Appendix 3. Factors and elements

UCS Factors UCS Elements CHW Criteria

Service Delivery Interaction Effort Influence Responsibility Thinking Challenge Effort Ph ysi ca 1 De m a nds Effort Care and Responsibility Work of Others Responsibility Care of Individuals Responsibility Financial Resources Responsibility Technical Resources Responsibility Working Conditions Environment Working Conditions Risk to Health Working Conditions Skill and knowledge Context Skill Acts and Regulations Skill Theories and Principles Skill Methods, Techniques and Practices Skill Communication Skill Physical Dexterity Skill TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Appendix 4 FEDERAL PUBLIC SECTOR EMPLOYMENT - DECEMBER 1994

Appendix 4. Federal public sector employment - December 1994

I. Public service employment for which Treasury Board represents the Employer Continuing employees' 196 123 Other employees 25 520 Employees under Treasury Board Jurisdiction 221 643 11. RCMP uniformed personnel 18 908 DND military Personal regular forces 77 953 Ill Other federal government employees not elsewhere accounted for2 34 730 Federal government employment: I + I1 + Ill 353 234 IV. DND military personnel reserves forces 31 238 Government business enterprises employees (mostly Crown Corporations) 152 548 Federal public sector employment: I + II + 111 + IV 537 020

I. Covers permanent and seasonal employees. 2. Covers mostly employees working for agencies under Program I, Part II of the Agreement on industrial relations in the public service and other Canadian government bodies. Also includes students, ministerial employees, federal judges and deputy ministers. Source: Treasury Board Secretariat. APPENDIXES

Appendix 5 PAY PARITY LAW BETWEEN MEN AND WOMEN

The pay parity principle is based on the Canadian Human Rights Act, which came into force in 1978. The articles 7, 10 and 11 of this Act defined proscribed discrimination regarding employment, policy and practices and equal wages. Courts settle grievance procedures related to pay discrimination for groups identified as being female predominant (i.e. occupying more than 55 per cent of women). Discrimination can be individual or collective. The calculation method for pay differentials between men and women is complex. It was set up by both the TBS and the unions in 1985. More than 3 000 posts (belonging to 9 female predominant groups, 53 male predominant groups and a few neutral gender groups) were evaluated. In 1989, the unions and the TBS disagreed on the posts’ evaluation system. The pay for 7 000 workers - both men and women working in female predominant groups - was adjusted. However, in the unions’ view, this was not sufficient to achieve pay parity and new grievances were lodged. There is still disagreement between the unions and the government on the method used for measuring pay disparities, which are based on comparator groups. The unions would like to make comparisons between groups showing an equal number of points, and the government’s position is to base the comparison on the level of pay of the entire group. TRENDS IN PUBLIC SECTOR PAY IN OECD COUNTRIES

Appendix 6 DOWNSIZING IN PUBLIC SERVICE AND EARLY DEPARTURE INCENTIVES

The downsizing government program implemented from 1986 to 199 1 did not provide the expected results. Departments had to fulfil the same functions with less staff resources, and at the same time some other programs increased requiring re-recruiting employees. The government wanted to adopt a new approach for staff reduction, based on rationalisation of services and programs. Six criteria were defined in order to identify which services should still be provided by the federal government: - Criterion of the public interest: does the activity or program continue to serve public interest? - Criterion of the role of government: is there a legitimate or necessary role for the government in the program or activity area? - Criterion of federalism: is the current role of the government appropriate, or should it be transferred to the provinces? - Criterion of partnership: what activities or programs could be transferred totally or partly to the private or free sectors? - Criterion of partnership: which activities or programs could be transferred totally or partly to the private or free sectors? - Criterion of efficiency: when a program or an activity continues, how can its efficiency be improved? - Criterion of financial capacity: can we afford all the activities or programs? If not, which should be abandoned. When these criteria are not fulfilled, employees working in a particular area or program are declared surplus. In addition, the idea of a core public service was introduced and a commission examined the issue of devolution for certain services, i.e. their transfer to the provinces, non profit-making enterprises, or the 1148 private sector. APPENDIX 6. DOWNSIZING IN PUBLIC SERVICE AND EARLY DEPARTURE INCENTIVES

As an employer, the TBS is responsible for the policy adopted, but the departments are all fully involved in this program. Once devolution is fully complete, the numbers should decrease from 200 000 to 100 000, without effective employment reduction, because the continuity in service provision would be assured - just the employees’ status would change.

INCENTIVES MEASURES - Early departure incentives: this option would be available in “most affected” only. It would apply only to indeterminate employees who have been declared surplus in those departments. - Early retirement incentives: this option will be available in all departments. to qualify, an employees must meet range of conditions (be declared surplus, have at least 10 years of Public Service employment, be at least 50 years old but not yet 60 by the time he or she leaves the Public Service etc.). - Pre-retirement transition leave: this option is available in all departments. Public Service employees who have been declared surplus are not eligible. Employees who qualify would be able to reduce their work week by up 40 per cent for a maximum of two years, with a commensurate reduction in pay. - Leave with income averaging: this option would be available in all departments and is not available to surplus employees. Employees who qualify will be able to reduce the numbers of weeks they work in a year by taking a “block” of consecutive leave without pay of at least five weeks and up to a maximum of three months. Their reduced income would be average out over a 12 month period. - Transition support services: During the three-year transition to a smaller Public Service, special initiatives will help employees make career decisions or find work outside the Public Service. Priority for these services will be given to those employees affected by downsizing.

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