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Public-sector wages a problem at the bottom, not the top

To travel around Ontario, in the run-up to a likely provincial election, is to sense a latent hostility toward a public sector perceived to have been sheltered from the fallout of the recession that hit more than five years ago and is still taking its toll.

A new research paper, released on Monday by the University of Toronto's Institute for Prosperity and Competitiveness, goes some distance toward validating that perception. As of 2012, by its calculation, government employees were on average earning 5 per cent more than their private-sector equivalents – a difference that, by the report's estimate, costs the public coffers more than $1-billion annually.

Even taking into account that the gap may have narrowed somewhat in 2013, because of a provincial push toward wage freezes, such numbers will help the governing Liberals' opponents exploit an understandable degree of wage envy – not to mention pension envy, the grounds for which the report also touches upon, but struggles to quantify because of a lack of transparency. But while the findings certainly help make the case that the deficit-saddled government has been too generous with wages that (combined with pension costs) make up roughly half its budget, they also suggest the situation is more complicated than it might first seem.

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To begin with, Ontario does not appear all that unique. Compar-ing it to the next three biggest provinces in the country, the researchers found British Columbia has roughly the same gap. And in Alberta, public-sector workers previously paid significantly less than private-sector counterparts have now pulled even. (Quebec is the one province included in the report that has gone from paying public workers a "premium" to having the two sectors roughly even.)

It is also not as clear as one might expect that Ontario's imbalance has grown only under the Liberals. Rather, the gap seems to have started to open up between 1999 and 2003, the second term of the Progressive Conservative government that preceded them. Beyond confusing matters politically, that suggests the impact of the 2008-09 recession isn't the only factor.

By far the most significant caveat for anyone looking to score populist points, though, is the report's breakdown of which public employees are overpaid.

Based on its analysis, the biggest public-sector "premiums" are paid to those on the lower end of the salary scale, such as clerical workers who reportedly make nearly 10 per cent more than they would in the private sector.

Meanwhile, it suggests the province's relatively small group of senior managers earns nearly 14 per cent less than comparable executives outside government – a figure that may be influenced by a few private-sector CEOs with whopping salaries pulling the average up, but appears significant even after that's taken into account.

That phenomenon may pose problems of its own; the report's authors suggest "government could be undesirably serving as an 'employment incubator' when workers at lower levels take advantage of the higher wages, but leave the public sector just when they achieve managerial positions that are crucial for the functioning of the government."

It's much harder, though, for politicians to rail against middle-class workers than those at the top of the pay scale, which is why NDP Leader Andrea Horwath has championed a cap on public-sector executives' salaries – a policy that would at best have a negligible impact on Ontario's finances.

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It's debatable whether more comprehensive restraint, of the sort PC Leader Tim Hudak wants, is the right answer either; there are those who would argue the real issue is wage stagnation for middle-income earners in the private sector. But this week's report at least helps provide some context for that vague sense of unfairness out there, and what it might really mean to respond to it.

Follow me on Twitter: @aradwanski

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Political Feature Writer

Adam Radwanski is The Globe and Mail's political feature writer. More


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