T he Leader of the Opposition Dr Peter Phillips has questioned the appropriateness of having a fixed wage to GDP target of nine per cent as is set out in the Fiscal Responsibility Framework and stipulated in law. He suggested that it would be better to establish a range that would provide some flexibility.

Dr Phillips must be commended for raising the issue in this way. It would have been far easier for him to simply harangue the Government for failing to meet the target.

Having struggled during his tenure to meet the target — and, in fairness to him and the position he has now advanced, a target that he inherited — Dr Phillips understands the difficulties. He understands, too, that with each incremental reduction, the next one is even more difficult, and that curtailment of critical government services is too high a price to pay for meeting the target and is counterproductive.

Not surprisingly, the International Monetary Fund representative in Jamaica, Dr Constant Lonkeng Ngouana has discouraged the idea. So, too, has the co-chairman of the Economic Programme Oversight Committee, Mr Keith Duncan.

The arguments for containing the public sector wage bill are compelling. Protecting the fiscal balance, making more resources available to be spent on infrastructure, security, health, education, etc, and containing the pension obligations that will have to be met in future years are elements of good fiscal management.

Method of delivering public services directly affects

There is no magic in the nine per cent target. When it was originally set at 9.5 per cent in 2010, it was informed by our fiscal predicament that could not sustain a wage bill which was then just under 12 per cent of GDP. Jamaica’s current wage to GDP ratio of 9.2 per cent is close to the revised target of nine per cent but still above most other countries.

However, such comparisons must be viewed with caution because the method of delivery of public services varies from country to country. In Jamaica, almost all public services are delivered through Government departments and agencies staffed with public sector workers. Much of the cost of those services, therefore, is reflected in the wage bill.

In some countries, more of their public services is delivered by private service providers who are paid by the Government. Hence, their public sector wage bill is relatively lower. The recent shutdown in the United States, for example, affected not only 800,000 Government employees but also an estimated 500,000 workers employed to contracted service providers. But the cost of paying for those services has to be reflected elsewhere in their budgets.

Dr Phillips pointed out that 80 per cent of the public sector wage bill goes toward paying teachers, police personnel and medical workers, and that these overburdened sectors need more — not less — staff.

Public sector census

To further illustrate his point, I reviewed the census of public sector employees that was conducted in 2011 as part of the public sector transformation effort. The census became necessary because there was no composite data on the total number of persons employed in the public sector.

The civil service establishment, which then constituted about 38,000 workers, accounted for one-third of the public sector wage bill. The rest was made up of teachers, medical personnel employed by the regional health authorities, Jamaica Defence Force personnel, and workers employed in local government and statutory agencies, most of which are funded from the central government budget.

The census revealed that the total number of public sector workers in 2011 was 111,024. Of that number, educational institutions, security forces, correctional institutions, health facilities and fire services accounted for 73,405 or 66 per cent of total public sector employment. Staff cuts in these areas are virtually impossible. It would require deep cuts in the remaining 34 per cent to make any real impact on the overall numbers.

Although it is often said that Jamaica has a bloated public sector, it accounted for 10.2 per cent of the employed labour force, which was below the average for both lower-middle income countries (11.1 per cent) and upper-middle income countries (10.8 per cent).

Using these figures — albeit outdated — in the accompanying chart, if we were to privatise services related to the supply of water, public transportation, solid waste management, postal services and prisons, we would reduce the number of public sector workers by just over 11,000 or 10.1 per cent and bring the wage to GDP ratio well within the nine per cent target. But we would have to find the money to pay the private service providers for these services and our net fiscal position may well be worse, not better.

Growing the GDP

This is not to rail against the privatisation of some Government services, which could possibly lead to improved efficiencies and better service delivery. It is simply to make the point that those who believe that this automatically translates into fiscal improvements should think again.

It is to make the point, as well, that reducing the wage bill is not necessarily the best pathway to improving our fiscal position. Rather, it is finding the way to grow the GDP sufficiently robustly to achieve a reduction in the wage to GDP ratio. Cutting the public sector may impede that effort. Growing the GDP may well require employing more staff in the underserved areas like nursing and security, as well as providing better remuneration to attract and retain staff.

The issue raised by Dr Phillips is worthy of serious discussion rather than a back-of-the-hand dismissal. If the Government were able to recruit the number of intensive care nurses, science teachers, crime investigators, agronomists, and technicians we so badly need, it would be the height of inefficacy to deprive itself of doing so because a fixed wage target cannot accommodate it.

A range that allows some flexibility, even if it is to be subject to specified circumstances, makes eminent sense. A fiscal target is a far more growth-oriented benchmark since it allows some trade-off between enhancing our human resource capability in the delivery of public services and other expenditure priorities.

Another issue that must be addressed is the need for organisational and cultural transformation of the public sector to align responsibility with authority — make it possible for individual performance to be more easily measured and rewarded, and facilitate greater accountability. That is a tougher task than meeting the wage target, but it is much more important and can produce far greater benefit.

— Bruce Golding is a former prime minister of Jamaica