Ottawa Overstimulates The Civil Service

Worth A Look, Taxation, Frontier Centre

So who benefited most from Ottawa’s billions in stimulus spending over the past two years? Construction workers? Undoubtedly. Lots of public works projects have moved forward that otherwise may not have begun for many more years. And autoworkers? Indisputably. Without taxpayer bailouts, tens of thousands of auto and parts workers would have been out of jobs. Yet beyond these two sectors, there is little chance the billions poured down the drain had much impact on other sectors, especially small businesses.

Indeed, the biggest winners likely have been public-sector workers, not surprisingly. In just the last year, public service employment rose across the country by 3.4%, half or more of the increase the result of jobs created to hand out stimulus cash. So while there is scant evidence that all the billions spent stimulated many private-sector jobs – the original purpose of the money – there is plenty of evidence it created lots of new jobs in government overseeing the non-jobs being created in the public sector. Governments aren’t much good at creating employment, except for more government workers.

This is a huge problem, not just because of the billions wasted on projects to nowhere. There is now an enormous compensation gap between public- and private-sector jobs. In short, it costs a lot more to create a public-service post than a comparable private-sector one. And the costs keep on mounting throughout each public employee’s lifetime – not merely his working career, but his entire life.

Rich public-sector pensions, for example, are in fact a form of deferred pay. Public employees contribute 40% or less to the cost of their pensions. As a result, they receive back during their retirement more than they would have earned from their contributions and their employer’s matching share. So their pension benefits are underfunded, meaning the payments made to make up the shortfall amounts to extra pay, above and beyond what they were paid when they were working.

The Canadian Federation of Independent Business (CFIB) estimated in 2008 – before the big drop in the economy and the decline in private-sector employment and pay that followed – that the gap between private- and public-sector wages was even then already 17.3% between federal government employees and their private-sector counterparts, a split that rose to 41.7% when all benefits and perks are included.

The gaps between provincial and municipal workers and their private-sector equivalents were (benefits included) 25% and 36%, respectively.

Public unions objected to these comparisons because the CFIB included hours worked in its calculations. Private and public wages may not be that far apart in terms of sums paid, but when one also includes the hours work to earn those sums, public workers make out like bandits. For example, two engineers – one private-sector, the other government employed – may both make $80,000 in a year, but the private-sector “gear” has to work 30% more hours to achieve that pay level. Therefore, the public-sector worker has a 30% compensation advantage.

The worst news in this story is the fact that the number of federal civil servants has risen 37% in the past decade, one of the largest booms in federal employment since the Second World War. And that doesn’t include the military and workers in Crown corporations, arms-length agencies and the other levels of government.

It takes roughly four government employees to do the work of three private-sector ones. That, in a nutshell, is why it costs more to hire government workers and why a burgeoning public sector is a burden on taxpayers, particularly now when taxpayers can’t afford the extra strain.