The deep recession from which the Canadian economy appears to have emerged caused real pain for hundreds of thousands of people. Jobs were lost, hours cut, and retirements postponed. It does not trivialize the hardship suffered by so many to point out that that same hardship concentrated the minds of those in government on how best to manage public money. In the process, governments have identified a major long-term threat to Canada’s fiscal health at the federal and provincial level: the rapidly escalating pay levels of public servants.
The past decade has been a boon for public servants at the municipal, provincial and federal levels. According to Statistics Canada, the weekly wages for the average worker in the economy increased by 28 per cent between 1998 and 2008. Salaries grew at a considerably faster rate at all three levels of government. Municipal public administration workers saw their wages increase by an average of 33 per cent during this same period. The average weekly wage for provincial public administration workers increased by 45 per cent during these years – still less than the 54 per cent increase for federal public administration workers.
These trends are unsustainable. Government salaries are paid with tax money raised from the private sector tax base. As anybody who manages their own finances knows, if a major expense continues to grow at a faster rate than revenues, it becomes harder to balance the books. For this reason, the escalating wages of public servants relative to everyone else will cause serious problems for the Canadian economy over time if there is no concerted effort by governments to significantly slow down these trends.
The recession has forced policymakers to recognize this problem and begin to address it. If there is a silver lining to the recession, that may be it. When times were good, tax revenues were high. Governments were able to make ends meet despite rapid public sector wage growth. Some may have recognized that a long-term problem existed, but there appeared to be no urgent need to address it . But as the recession drove revenues down, and governments needed to try to avoid even worse deficits, some have correctly identified slowing the growth of public sector wages as an important and necessary cost-control measure.
New Brunswick took the lead in 2009, announcing a two-year wage freeze for all civil servants. Facing a big deficit, New Brunswick’s Human Resources Minister Rick Brewer expressed sympathy for those whose wages would be frozen, but stated that it was necessary for all government employees to “share in the pain” for the sake of the province’s fiscal health.
Earlier this year, the federal government followed New Brunswick’s lead, announcing a pay freeze for MPs and Senators. Though this act was largely symbolic, as it applied to a small number of people, it reflected a realization that the growth of public sector salaries must be brought under control. As collective bargains for federal public servants reach their conclusion in coming years, it is reasonable to hope the federal government will limit wage growth for other federal government employees, as they have already done personally.
In recent months, two more provincial governments have trod down this road, announcing wage freezes for large numbers of public sector employees. Manitoba’s NDP government announced a public sector wage freeze in February, a step officials calculate will save $100 million – substantial savings in a province of just 1.1 million people. Most recently, Ontario’s Liberal government, with a massive $21-billion deficit– announced an immediate wage freeze for MPPs, political staff and non-unionized public sector employees. Premier Dalton McGuinty has stated that as collective bargains expire, unionized public sector workers should also expect to face wage freezes in coming years.
The high price of public sector labour is still a serious problem in Canada that poses a long-term threat to our economic health. But there are hopeful signs, from the Maritimes to Ontario to the Prairies, that the “great recession” has prompted governments across Canada to recognize this problem and take action to address it. This adjustment is overdue and necessary to help bring government expenses back into line with revenues and to allow governments to return to balanced budgets as quickly as possible.