Op-eds | January 29, 2013

Beyond the headlines

What the Fraser Institute report really says about public sector compensation

Parkland Institute

The Fraser Institute this past week released a study comparing public and private sector compensation (wages and non-wage benefits) in Alberta. Release of the report is clearly meant to influence public debate about the province’s deficit leading up to the March budget. Much of the media, lacking time and perhaps expertise, quickly broadcast the report’s key message: that public sector workers are greatly more compensated than their private sector counterparts and its implication that the Alberta government should look at public sector compensation in order to deal with the province’s financial problems.

But is the argument valid? A careful reading of the actual report (authored by Amela Karabegovié and Jason Clemens) points to conclusions that are much more ambiguous, while ironically perhaps skewering a different target: the private sector itself.

The gift-wrapping on the report for the media and public suggests that it compares the compensation paid to provincial employees in Alberta with workers in the private sector and likewise with compensation paid in other provinces. But it does no such thing. Rather, it uses Statistics Canada’s Labour Force Survey data for April 2011 to compare all public sector workers (federal, provincial, and municipal) who reside in Alberta with private sector workers in the province. The report’s authors note this flaw in their data set, but rather too quickly dismiss the problem – a dismissal continued in media reports. This is not a minor flaw: 7 percent of those in the data set were federal employees, 48 percent were municipal employees, and only slightly less than 45 percent were provincial employees. In effect, the report compares three types of apples with oranges.

For the moment, however, let’s overlook this flaw. Does the report have anything really valid to say about public vs. private sector compensation in Alberta? Specifically, does the report show that public sector workers in Alberta have a clear advantage and that this “premium” is out of step with that found elsewhere?

Let’s first look at the report’s conclusions regarding wage compensation. I won’t bore readers with technicalities here. Suffice to say, however, that the examination is incomplete and leaves out some important considerations, such as where people live in the province. Or, when it compares Alberta with other provinces, failing to compare the cost of living. Finally, the report does not deal with what is referred to as “un-observables” in the data. In the case of public sector employees, part of the observed premium on wages may simply be – and likely is – the result of compensation for skills that are not captured in the data. The result is that the analysis of wage compensation is muddy and unconvincing.

What about non-wage compensation? Here again, the authors giveth and then quickly taketh away. First admitting that, “Unfortunately, individual data on non-wage benefits such as pensions, vacation time, health benefits, etc., is not readily available in Canada,” the report then makes much ado using a set of proxy measures: registered pensions, average age of retirement, and job loss.

The findings? First, that more public sector workers than private sector workers have some form of registered pension plan in Canada (88 percent vs. 24 percent), and that these results also hold true for Alberta (81 percent vs. nearly 22 percent). Pity private sector workers, I’d say.

Second, on retirement, the report shows that public sector workers in Alberta retire on average at an age older than their counterparts elsewhere in Canada and they do so only marginally before workers in the private sector. In short, the allegedly exorbitant compensation paid to public sector workers’ living in Alberta does not seem to have greatly encouraged or supported early retirement.

Third, the report finds that job losses in the public sector are also only marginally less than those in the private sector in Alberta. Perhaps, one wonders, because of the slightly earlier time of retirement?

In the bigger picture, the report paints not so much a negative portrait of public sector compensation, but rather a quite damning one of what is going on in the private sector, both in Alberta and Canada as a whole. Far from attacking public sector compensation – implying that the way to prosperity lies in lower compensation for public sector workers, we should be looking at the role of the private sector in hollowing out the jobs and lives of Canadian workers and their families. Every worker in Alberta and Canada deserves no less than good jobs, good wages, and retirement security.


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