Public Expenditure Tracking and Service Delivery Surveys

Public Expenditure Tracking and Service Delivery Surveys

Public Pay Policy and Its Implications for the Budget Jordan Public Expenditure Review June 19, 2003 Amitabha Mukherjee Poverty Reduction and Economic Management Unit East Asia and Pacific Region, The World Bank Public Pay Policy and Its Implications for the Budget Some concepts Civil service compensation: international comparisons

Public pay policy issues Budget formulation, execution, monitoring: Processes and Instruments A. Some Concepts Civil Service Role & Size Based on answers to three basic questions: What role of the state

How organization, administration By or structure of the public whom civil service role, composition & size Civil Service Compensation Elements: Base

salary Allowances Pensions Other benefits Monetary Non-monetary Civil Service Compensation Concepts: Wage adequacy Average Central Govt. Wage as multiple of per capita

GDP Compression Ratios Transparency Monetization Competitiveness Fiscal sustainability Civil Service: Relating Positions To Compensation Job description Job evaluation Job families

Grading Classification of positions Pay policy Salary structure/grades/steps Budgetary Pay & Employment Objective To achieve a sustainable level of budgetary employment consistent with remuneration levels sufficient to attract and retain qualified personnel Budgetary Pay & Employment Linkage with: role and functions of the state streamlining of central government

affordability criteria fiscal and administrative relations between central and local governments legal framework for budgetary employment (benefits, severance payments, pension, etc) B. International Comparisons Why are Government Employment and Wages comparisons tricky? Lack of reliable and recent country data Differences in:

Methodology and classification Concept of the State Role and functions of different tiers of govt. Treatment of benefits and allowances Wages Caveats: Compensation may be understated (e.g. bonuses/allowances may not be captured) Manufacturing wages in particular, and private sector wages in general, are often understated for tax and social contribution purposes by employers and employees

Wages Average Central Government Wages (yearly, in local currency) Assessment of the Wage levels in relative terms Wage bill as % of GDP, O&M Exp. Private Sector Comparators Average Manufacturing Wage Average Financial Sector Wage

Average Private Sector Wage Wage Adequacy Average Central Govt. Wage as multiple of per capita GDP Compression Ratios Government Wages as percentage of GDP 12 10 8 6 4 2

0 Africa Asia ECA LAC MENA OECD Central Government Wages and salaries Overall Average Govt. Wages as Multiple of per capita GDP

4.5 4.3 4 3.5 3 2.5 2.5 2.2 2 1.5 2 1.2

1.1 1 0.5 0 Africa Asia ECA LAC MENA OECD

General Government Employment Employment in all government departments offices, organizations and other bodies which are agencies or instruments of the central or local authorities whether accounted for or financed in, ordinary or extraordinary budgets or extra-budgetary funds. They are not solely engaged in administration but also in defense and public order, in the promotion of economic growth and in the provision of education, health, cultural and social services. Source: International Standard of Industrial Classification of All Economic Activities (ISIC), Series M No. 4, Rev 3- 1990. General Government Employment Six categories within General Government Employment:

Armed forces Civilian central government Sub-national government Health sector Education sector Police Not included: casual/seasonal/temporary employees Employmen t

Public Sector Employment: State Owned Enterprises (where available) General Government Employment: Military Employment Central Government Employment Subnational Level Employment Education (primary & sec. school teachers)

Health (Doctors, Nurses, Midwives and Nurses Assts.) Police * (as an experiment) Expressed in nominal terms and as % of population, labor force, total employment Employmen t Trends in employment, especially those relating to health and education, need to be seen against: Fiscal situation necessitating measures such as taking employment off budget (e.g. Armenia/Kazakhstan) Progress on reform of intergovernmental finances (e.g.

Central Europe) Data accuracy a key issue in many countries Government Employment 10 9 8 7 6 5 4 3 2 1

0 Asia Central S ub-National LAC Education Health OECD Military C. Public Pay Policy Issues Civil Service

Compensation Policy: Issues Two common issues: Objective(s) of Pay Policy Are objective(s) clear? If multiple objectives, are they consistent? If not, how to reconcile? Pay Determination Mechanism including: Extent of Independence from Executive

Extent of Collective Bargaining If Any Civil Service Compensation Structure of Compensation Pay Policies Dispute Resolution Interaction between budget cycle and pay determination cycle Collective Bargaining

Level at which negotiations take place Status of collective agreements Participants in collective bargaining Unionization level Matters covered by collective bargaining Indexation Frequency of collective bargaining Structure of Pay

Basic rates Flexibility and relativities Pay progression Performance pay? Regional pay variations Extent of Decentralization and Its Effect(s) Pay Policies

Policy objectives and principles Public sector pay cost restraint Factors in adjusting pay Data sources Minimum wage issues Sector specific issues How much flexibility is appropriate???? Resolving Compensation Disputes No strike rules Typical conflict areas/themes Pay Determination

Systems Centralized collective bargaining esp. for federal/central civil servants Exceptions: New Zealand: Individual contracts France: Negotiation not official. No agreements in several years: pay was unilaterally set by Govt. Finland: (personal agreements for c. 1000 senior CS) Germany, Greece: CS status and pay set by law. D. Link With Budget Formulation, Execution

and Monitoring Pay Policy: Pressures & Impacts Fiscal Pressures: Size of wage bill Number of public sector employees Public Administration Structures

Human Resource Management Legal Framework Sector-specific issues, especially in health, education, police, armed forces All of these impact poverty reduction, service delivery and growth Impacts Impact of pay and employment policies: Governance and corruption problems Access to services (see slides) Under the table payments (see slides)

Poor quality of civil service Inefficiency Increases cost of service delivery Impacts: Example Contracting Out Health Care Services Need for careful design and implementation: Financing arrangements Reporting and monitoring

Timeliness of reimbursement Realism of cost recovery arrangements Preventing build-up of arrears Increase in bribe levels and frequency No change in staffing levels and staffing mix Impact on health statistics emergencies The Rich Pay More, But the Poor Pay More Dearly median percent of household income paid in bribes (among those that paid) percent of households that reported paying bribes in the previous 12 months 33%

20% 16% 11% 8% 5% poorest third middle third richest third The Rich Bribe for Speed, The Poor Bribe for Access 100%

Speed 75% 77% Benefits Avoid Problems 67% Gratefulness 50% 50% 39% 36%

30% 25% 22% 23% 17% 11% 6% 9% 0% poorest third middle third

richest third Notes: This chart is restricted to those respondents who made unofficial payments that they felt were necessary in order to receive proper service. Thus the designation "gratefulness" not not imply an innocuous token of appreciation or tradition. Processes and Instruments Medium Term Expenditure Framework MTEF & Budget Cycles and Human Resource Planning Example from reading Linking personnel information and

payroll Human Resource Management Information System (HRMIS) Post management Wage bill control Rightsizing and severance Processes and Instruments Estimating the fiscal impact of pay and employment adjustments: Modeling tool to explore alternative scenarios

Challenges: Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, etc etc Personnel data Compensation data Pensions and social security contributions The role and importance of participatory PERs

Examples: Philippines, Indian states Reference: PEPFMR and follow up The AAA project cycle see uploaded presentation CSR: Operational Approaches Strengthening the linkages Thailand Efficient nucleus Russia (TAMP) Internal structural adjustment UK/Japan

Combination of all three: New Zealand/Australia Kazakhstan CSR: Operational Approaches Personnel management systems Addressing capacity constraints Simplification of pay and grading structures Internal upward feedback from inside External feedback for measuring impact:

Feedback from public (households/firms) Feedback from civil society and media Public Pay Policy and Its Implications for the Budget Some concepts Civil service compensation: international comparisons Public pay policy issues Budget formulation, execution, monitoring: Processes and Instruments

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