Controlling public sector employment

2. The level of compensation can affect performance. Rapid erosion in real compensation where employment is nonetheless secure can reduce work effort, because workers will turn to moonlighting, petty corruption and the pursuit of nongovernment work during official working hours to supplement their declining salaries. Maintaining staff morale and honest, efficient government under such conditions is difficult. If services decline more than proportionally to decline in wages, the unit cost of government goods and services will rise. Furthermore, many efforts to reduce the public sector wage bill, although important in helping to achieve fiscal balance, overlook the critical importance of wage differentials. Such differentials between grades are important. The severe wage compression occurring in many countries not only diminishes the incentive to work hard but also encourages better qualified staff to leave and lesser qualified staff to stay.

(b) elimination of vacancies and temporary positions. Such workers are often easier and less expensive to release than permanent staff, because they possess fewer legal claims.

(c) reducing employment over time by freezing general recruitment, with some limited provision to replace essential staff, and suspension of employment guarantees. Retirements and other attrition then reduce total employment. Employment guarantees for graduates, whereby the government guarantees employment if it cannot be found elsewhere, are becoming less common, except perhaps for teacher colleges.

(d) imposing automatic retirement upon reaching retirement age or requisite years of service, or offering voluntary retirement. While reducing the total work force, such schemes provide governments with little control over who actually leaves public service and they risk losing staff they would prefer to retain. To be effective, voluntary retirement schemes also require expensive inducement mechanisms, such as severance pay.

(e) outright dismissal of redundant or (even more difficult) incompetent workers. This is difficult to apply. Severance pay for redundant workers can ease the transition, but only those workers with a legitimate claim to public employment as an acquired right, rather than a recent windfall, should be eligible. The political cost of such a programme can be eased through public education to publicize and explain the government's retrenchment plan. Such a campaign in Guinea apparently increased the public's acceptance of the austerity measure.

(f) across-the-board wage cuts, caps and freezes. These policies, sometimes combined with reduced fringe benefits, lowered transport allowances, cuts in cash leave grants and elimination of subsidized lunches, have led to virtually zero growth in wage bills; but they relieve budget pressures only temporarily if governments acquiesce to built-up wage demands when the freeze is lifted. Furthermore, because freezes are applied to the salary structure and not to individual compensation, promotions may offset intended budgetary savings.

(g) salary reforms to widen wage differentials by improving the pay of senior staff. Budgetary constraints and political pressures make such reforms difficult to implement. Nonetheless, they are clearly necessary in many cases in order to improve the overall performance of government, particularly after sustained periods of wage compression. Creating supergrades for upper management, like the senior executive service in the USA, is one way to offer higher compensation to senior government officials. Another means, as in Ghana, is to second staff to important government posts from more remunerative positions in state owned enterprises or the private sector. Such secondment is eligible for financing through a World Bank technical assistance credit.