Yeah, so public servants earn more — what's your point?

By David Donaldson

December 21, 2015

Those employed in the public sector have higher average weekly earnings than their private sector counterparts.

While that’s true, it’s also a fairly meaningless statistic.

Especially if you’re using it to argue that public servants are overpaid, as the Institute of Public Affairs did in a report on public service remuneration and conditions released Friday that was picked up by The Australian. The document argues:

“Public sector wages are higher than those in the private sector, on average. There is a risk that above-productivity wage increases may flow through to the private sector, which does not have the same capacity to absorb costs through increased taxation.”

James Paterson, deputy executive director of the IPA and a co-author of the report, said that:

“… ongoing public service enterprise bargaining disputes are being driven by unreasonable demands from unions representing exceptionally well-remunerated public servants. Over the past decade, federal public servants’ pay has risen by 50.7%, far more than the increase in CPI of 31.8%.

“In May 2014, public sector full-time adult average yearly earnings were $81,114.80, compared to the private sector average yearly earnings of $74,152.00. The idea that public servants are underpaid is completely unsubstantiated.”

But that’s the entire private sector — in other words, everyone from bankers to supermarket staff and cleaners — being compared to the sector that runs the country, and is disproportionately populated by lawyers and economists.

This is the extent of the analysis behind their claim. There’s nothing looking at like-for-like — how much does someone with similar qualifications get paid in each sector? This would tell you something very different, which would likely not fit the IPA’s argument quite so well.

It’s a truism that among the senior ranks of the public service there are many who would be paid more for their time in the private sector — among the more extreme examples, New South Wales’ new Treasury secretary took a 90% pay cut, down from $4.7 million to under $500,000, for his move into government.

To get an idea of the make-up of the public sector, and why it would have a higher average rate of pay, consider educational attainment: at June 2015, 60.7% of ongoing Australian public service employees had graduate qualifications. This is compared to 8.6% of the general population.

Chart presented in the IPA report (source: ABS)
Chart presented in the IPA report (source: ABS)

The IPA’s claim is backed up by a graph demonstrating the gap between private and public sector employees over a five-year period. Indeed, a gap exists. What it also shows quite clearly — which does not rate a mention in the text — is that average public sector wages have grown at a similar rate to those in the private sector. The gap has been relatively steady for a while.

Instead, the authors’ chosen point of comparison for wage growth is the consumer price index:

“Over the past decade, Australian Public Service employees have enjoyed wage increases substantially above CPI. During this time, APS remuneration increases totalled 50.7 per cent, compared to CPI increases of 31.8 per cent. That is more than most other industries.”

There’s a reason they compare the public sector growth rate to the CPI rather than the private sector growth rate: because they’re not that different. If you work from the latest Australian Bureau of Statistics numbers, average adult ordinary full-time earnings in both the public and private sectors grew 49% over the previous decade.

The IPA’s “findings” about public sector pay, while strictly true, are close to meaningless.

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