Promising millions of jobs during the election campaign only to reveal the government’s inability to provide jobs once in power does not go down well with the public
While the Federal Minister for Science and Technology, Fawwad Chaudhry, recently said that people should not look towards government for jobs, Prime Minister Imran Khan, hinted in a more circumspect way at the inability of the government to provide jobs.
The insinuation of the prime minister, which may be called a paradigm shift because no previous government had said this in so many words, drew a backlash from the public irrespective of their political affiliation.
While one can understand the limitations of the government in supporting a large public sector, a cursory look at the size of the public sector and the expenditures incurred on the public sector employees shows that Pakistan may not actually be supporting a very large public sector.
Public sector employment in Pakistan, as a share of its total employment, is relatively small. According to World Bank data, the public sector employed around 7.5 percent of the labour force in 2014. The ratio was 15 percent in China, 21 percent in the United Kingdom, and 35 percent in the United States in recent years.
Another myth prevalent here is that a very large share of GDP is devoted to the salaries of government servants in Pakistan. According to the recent World Bank statistics, Pakistan spends less than 1 percent, (0.62 percent to be specific), of its GDP on the wages of its public sector employees. Even Bangladesh spends 1.7 percent of its GDP on its public sector employees. The wage bill of public sector employees in the United States and the United Kingdom is 9 percent and 10 percent of the GDP, respectively.
Policymakers generally tend to look at the wage bill as a share of public expenditure. While Pakistan spends a meager 3 percent of public expenditure on the wages of its public sector employees, Bangladesh spends 12 percent. The wage bill of public sector employees is 23 percent and 26 percent of public expenditure in the United Kingdom and the United States respectively.
A related question is why is there always a scramble for government jobs in Pakistan? A number of factors may explain the preference for government jobs but the wage differential between the public sector and the private sector is, arguably, one of the most important reasons behind a worker’s preference for public sector jobs. When the public sector offers a higher wage rate, it is technically called, the public sector wage premium. For example, a 5 percent public sector wage premium means that wages in the public sector are 5 percent higher than the wages of the private sector on average.
The public sector wage premium in the United Kingdom is 1 percent, which means that, on average, government employees in the UK earn 1 percent higher income than the employees in the private sector. The public sector wage premium is -4 percent in the US which means that public sector employees earn 4 percent less than their private sector counterparts. Public sector wage premium in Bangladesh was 11 percent in 2015, and a whopping 49 percent in Pakistan in 2014.
A deeper look at the public sector wage premium in Pakistan shows some intriguing patterns. While men in the public sector jobs earn 42 percent more than their private sector, women in the public sector jobs earn more than 100 percent more than compared with their private-sector counterparts. Such a substantial gender-based difference between the wages offered in the public sector and the private sector may require a fundamental reappraisal to curb exploitation of female employees in the private sector.
While Pakistan spends a meager 3 percent of public expenditure on the wages, Bangladesh spends 12 percent. The wage bill of public sector employees is 23 percent and 26 percent of public expenditure in the UK and the US respectively.
The question whether the government should be a job provider or not has been a subject of academic debate for a long time. Some of the arguments in favour of the expansion of public sector employment are summarised here. Expanding public sector employment can be an effective means of reducing unemployment in the short term, providing a stabilising effect during recessions or in relatively disadvantaged regions. Public sector employment can create demand in other sectors of the economy (e.g., private services). Public sector employment supports equitable policies, such as encouraging employment of the marginalised and/or disadvantaged groups.
Expansion of public sector employment is also believed to adversely affect the economy. It is argued that the expansion of public sector employment can reduce short-term unemployment only when wages in the public sector are flexible according to productivity, rather than fixed. It is also argued that the expansion of public sector jobs leads to “crowding out” of private-sector employment; when wages are relatively unresponsive to productivity differences, this can even increase unemployment. High public sector employment may lower overall productivity in an economy that is reallocating resources from the private to the public sector, or from higher to lower productivity sectors.
The general consensus emerging from the debate on large or small public sector suggests that wages in the public sector should be flexible and should adjust to local productivity. It is only when wages are highly pro-cyclical (higher wages during booms and lower wages during recessions) that the public employment policy will generate positive effects on total employment.
Geographically, homogeneous or time-rigid (acyclical) wages exacerbate unemployment instead. Policymakers should, thus, promote flexible, pro-cyclical public sector wages. However, given the institutional structure of wage setting, it may be difficult to ensure flexible public sector wages, in which case policymakers should be aware that a policy that increases public sector jobs can generate higher unemployment.
In Pakistan’s current situation, when the historical share of government jobs in total employment is just 7.5 percent and macroeconomic indicators do not seem to improve radically in the near future, the government’s capacity for economic maneuvers is very limited. However, it has to make a stark moral choice. Either it has to categorically make it clear that it cannot provide jobs without attaching ifs and buts. Or it can continue with the policy of previous governments.
The previous governments have tried to make governments leaner with varying degrees of success. Governments in the past, at times, replaced permanent jobs with contract-based jobs (some of which were subsequently made permanent) and, on other occasions, offered a golden handshake to employees of other state-run institutions. PML-N governments made repeated efforts to privatise public sector colleges in the Punjab but had to step back in the face of fierce resistance by the employees in the higher education sector.
However, many problems of the incumbent government are rooted in its electoral manifesto. Promising millions of jobs during the election campaign only to express its inability to provide government jobs once in power does not go down well with the public.
The average wage differentials between the public sector and the private sector (public sector wage premium) in Pakistan are significantly higher than those in developed economies. Employment in the public sector almost always guarantees job security, irrespective of the level of commitment and dedication to work shown by the employees. Governments have provided a modicum of social security in the form of retirement benefits to their employees, while such benefits are either negligible in the private sector or are non-existent.
The difference in the public sector and private sector with respect to wage level, job security, and social benefits after retirement largely explain why the government job is the first choice of most people. For well educated people, a government job is nearly the only option.
What type of damage control strategy can work in this situation? Probably none. At least, not in the short run. All available options are long-term in nature. Paradoxically, short-term goals largely define the political culture. Regulating the private sector is easier said than done. However, some fiscal measures can be undertaken to provide old-age benefits to the private sector employees to reduce the pressure on government jobs. Other options include tying the wage rates in the public sector jobs to productivity and overall economic health of the country.
The writer is an Assistant Professor in the Department of Economics at COMSATS University Islamabad, Lahore Campus and can be reached at [email protected]