What are the incentives of civil service
In the analysis of current changes in the number of employees and the level of remuneration in the government sector of developed countries, the question inevitably arises, what encourages people to work in this sector and how to improve incentives of civil servants in the efficient performance of their responsibilities.
One of the major advantages of employment in public sector as compared with the private business is a system of various benefits, bonuses and allowances, provided to civil servants. The major benefits of remuneration in public sector are beneficial pensions. The advantage of the public sector over the private sector in terms of pensions is the most significant. However, one of the strongest and most important reasons that motivate people to seek employment in the public sector is a guaranteed employment - this indicator cannot be overestimated, especially in the periods of high and sustained unemployment.
In literature1 there are various theoretical grounds for employment and wages indicators in public sector. The first approach is called functional-technological and focuses on the fact that the parameters of public activity may be largely based on exogenous factors of supply and demand in the market. The second approach is focused on the short-term factors: political ideology, level of democracy, political pressure, which may create incentives for the growth of employment in the public sector. In addition to the above, many budget indicators influence the number of civil servants, including such indicators as budget deficit, public debt service, etc., as well as availability and active use of external financing.
In general, the analysis of international experience shows that employment is significantly less volatile, especially in downward trend, as in the periods of fiscal problems it is much easier to the government to reduce public investment and wages, rather than reduce employment. Thus, within 1995-2009 in most OECD countries the share of remuneration of employees in the government sector remained roughly stable and averaged to 11% of GDP.
According to OECD data, in 2000-2009, in the majority of OECD countries payroll expenses accounted for 50-60% of the total cost of production in the sector of general government production costs2. It should be noted that in 2009 the production cost in the government sector of OECD countries amounted to about a quarter of GDP and, as shown in Fig. 1, this share was significantly variable from country to country.
Fig. 1. The total cost of production in the general government sector in OECD countries, including compensation of employees, in % of GDP, 2009.
Source: OECD national accounts (http://stats.oecd.org/index.aspx?r=114385). Data on Australia is based on the Government Financial Statistics And National Accounts of Australian Bureau of Statistics.
It should be noted that the compensation system in the public service before 1960-1970s mainly consisted of salary and a small number of subsistence payments based on specifics of civil service. About 30 years ago, almost all civil servants in OECD countries were paid according to the service record, regardless efficiency of their performance. A raise of salary was dependent on a promotion to a higher position, which could happen in decades. Since the 1970s, the system of civil servants’ compensation in many countries began to undergo significant changes.
In the 1980s, after severe and in many ways similar political and economic changes in a number of developed countries, a series of reforms amending the activities and structure of the public sector were implemented. There occurred processes of decentralization and privatization (or transfer of the many government functions to other agencies), which were reducing the number of government officials and bureaucrats, and what is also very important, the transition to a performance- related system of management and reward was implemented3.
Specifics of the system of performance-related pay, or PRP is that, in contrast to the standard principles of public service, it emphasizes decentralization of decision-making, identifies individuals and their individual achievements and results. But nevertheless, both, standard and centralized systems were used4. Despite the types and characteristics of labor compensation systems (such as the level of financial support, etc.) may be different, the overall performance- related system has its drawbacks: there are problems in the quality of the performance assessment, as well as compliance of the individual results with corporate and nation-wide objectives. There are many examples of success or failure of that system (for instance, in Sweden, New Zealand, Australia, USA, etc.).
In a number of developed countries the introduction of PRP system led to a sharp increase in compensatory and incentive-based payments. However, from the late XX – early XXI centuries, a clear tendency in simplification the system of remuneration in the civil service in terms of reducing the amount of such payments. Herewith, the adequacy of the system and the level of civil servants compensation are still outstanding issues in both, Russia and developed countries.
Thus, according to the OECD, in recent years a reduction in the number of civil servants is observed in developed countries. Apparently, this is urged not only by the global economic crisis (2008-2009), but also by the reform of civil service held in a number of countries5, aimed at increasing its flexibility, in other words, its ability to adapt the employees to the changing circumstances or priorities in line with increased competence and motivation of employees to enhanced performance.
M.V. Kazakova, Ph.D. in Economics, Head of Economic Development Department, A.I. Ampilogov, Junior Researcher of Economic Development Department, Е.А. Glushkova, Junior Researcher of Economic Development Department, А.М. Yarkin, Junior Researcher of Economic Development Department
1See, for instance, Kraay and Rijckeghem (1995) «Employment and Wages in the Public Sector- -A Cross-Country Study», WP/95/70, INTERNATIONAL MONETARY FUND, Fiscal Affairs Department.
2Government at a Glance 2011//OECD Publishing, 2011 (http://www.oecd-ilibrary.org/governance/government-at-a-glance-2011_gov_glance-2011-en).
3См. Ingraham, P. W. (1991) "A Summary of the Experience with Pay for Performance in the United States". Paris: Organization for Economic Cooperation and Development; Wood, R. (1991) "Performance Pay and Related Compensation Practices in Australian State Public Sector Organizations". Paris: Organization for Economic Cooperation and Development; Pollitt, C. (1990) "Managerialism and the Public Services" Cambridge, Mass: Basil Blackwell, 1990.
4http://www.oecd.org/governance/publicemploymentandmanagement/34910926.pdf;
http://www.oecd-ilibrary.org/sites/gov_glance-2011-en/05/01/index.html?contentType=&itemId=/content/chapter/gov_glance-2011-27-en&containerItemId=/content/serial/22214399&accessItemIds=/content/book/gov_glance-2011-en&mimeType=text/html
5 In particular, in France (http://www.oecd.org/fr/gov/revuedelocdesurlagouvernancepubliquefrance.htm),
Ireland (http://www.oecd.org/gov/oecdpublicmanagementreviews-irelandtowardsanintegratedpublicservice.htm),
Finland (http://www.oecd.org/gov/oecdpublicgovernancereviews-finlandworkingtogethertosustainsuccess.htm),
Slovenia (http://www.oecd.org/gov/oecdpublicgovernancereviewsthepublicsectorsalarysysteminslovenia.htm) et al.
In literature1 there are various theoretical grounds for employment and wages indicators in public sector. The first approach is called functional-technological and focuses on the fact that the parameters of public activity may be largely based on exogenous factors of supply and demand in the market. The second approach is focused on the short-term factors: political ideology, level of democracy, political pressure, which may create incentives for the growth of employment in the public sector. In addition to the above, many budget indicators influence the number of civil servants, including such indicators as budget deficit, public debt service, etc., as well as availability and active use of external financing.
In general, the analysis of international experience shows that employment is significantly less volatile, especially in downward trend, as in the periods of fiscal problems it is much easier to the government to reduce public investment and wages, rather than reduce employment. Thus, within 1995-2009 in most OECD countries the share of remuneration of employees in the government sector remained roughly stable and averaged to 11% of GDP.
According to OECD data, in 2000-2009, in the majority of OECD countries payroll expenses accounted for 50-60% of the total cost of production in the sector of general government production costs2. It should be noted that in 2009 the production cost in the government sector of OECD countries amounted to about a quarter of GDP and, as shown in Fig. 1, this share was significantly variable from country to country.
Fig. 1. The total cost of production in the general government sector in OECD countries, including compensation of employees, in % of GDP, 2009.
Source: OECD national accounts (http://stats.oecd.org/index.aspx?r=114385). Data on Australia is based on the Government Financial Statistics And National Accounts of Australian Bureau of Statistics.
It should be noted that the compensation system in the public service before 1960-1970s mainly consisted of salary and a small number of subsistence payments based on specifics of civil service. About 30 years ago, almost all civil servants in OECD countries were paid according to the service record, regardless efficiency of their performance. A raise of salary was dependent on a promotion to a higher position, which could happen in decades. Since the 1970s, the system of civil servants’ compensation in many countries began to undergo significant changes.
In the 1980s, after severe and in many ways similar political and economic changes in a number of developed countries, a series of reforms amending the activities and structure of the public sector were implemented. There occurred processes of decentralization and privatization (or transfer of the many government functions to other agencies), which were reducing the number of government officials and bureaucrats, and what is also very important, the transition to a performance- related system of management and reward was implemented3.
Specifics of the system of performance-related pay, or PRP is that, in contrast to the standard principles of public service, it emphasizes decentralization of decision-making, identifies individuals and their individual achievements and results. But nevertheless, both, standard and centralized systems were used4. Despite the types and characteristics of labor compensation systems (such as the level of financial support, etc.) may be different, the overall performance- related system has its drawbacks: there are problems in the quality of the performance assessment, as well as compliance of the individual results with corporate and nation-wide objectives. There are many examples of success or failure of that system (for instance, in Sweden, New Zealand, Australia, USA, etc.).
In a number of developed countries the introduction of PRP system led to a sharp increase in compensatory and incentive-based payments. However, from the late XX – early XXI centuries, a clear tendency in simplification the system of remuneration in the civil service in terms of reducing the amount of such payments. Herewith, the adequacy of the system and the level of civil servants compensation are still outstanding issues in both, Russia and developed countries.
Thus, according to the OECD, in recent years a reduction in the number of civil servants is observed in developed countries. Apparently, this is urged not only by the global economic crisis (2008-2009), but also by the reform of civil service held in a number of countries5, aimed at increasing its flexibility, in other words, its ability to adapt the employees to the changing circumstances or priorities in line with increased competence and motivation of employees to enhanced performance.
M.V. Kazakova, Ph.D. in Economics, Head of Economic Development Department, A.I. Ampilogov, Junior Researcher of Economic Development Department, Е.А. Glushkova, Junior Researcher of Economic Development Department, А.М. Yarkin, Junior Researcher of Economic Development Department
1See, for instance, Kraay and Rijckeghem (1995) «Employment and Wages in the Public Sector- -A Cross-Country Study», WP/95/70, INTERNATIONAL MONETARY FUND, Fiscal Affairs Department.
2Government at a Glance 2011//OECD Publishing, 2011 (http://www.oecd-ilibrary.org/governance/government-at-a-glance-2011_gov_glance-2011-en).
3См. Ingraham, P. W. (1991) "A Summary of the Experience with Pay for Performance in the United States". Paris: Organization for Economic Cooperation and Development; Wood, R. (1991) "Performance Pay and Related Compensation Practices in Australian State Public Sector Organizations". Paris: Organization for Economic Cooperation and Development; Pollitt, C. (1990) "Managerialism and the Public Services" Cambridge, Mass: Basil Blackwell, 1990.
4http://www.oecd.org/governance/publicemploymentandmanagement/34910926.pdf;
http://www.oecd-ilibrary.org/sites/gov_glance-2011-en/05/01/index.html?contentType=&itemId=/content/chapter/gov_glance-2011-27-en&containerItemId=/content/serial/22214399&accessItemIds=/content/book/gov_glance-2011-en&mimeType=text/html
5 In particular, in France (http://www.oecd.org/fr/gov/revuedelocdesurlagouvernancepubliquefrance.htm),
Ireland (http://www.oecd.org/gov/oecdpublicmanagementreviews-irelandtowardsanintegratedpublicservice.htm),
Finland (http://www.oecd.org/gov/oecdpublicgovernancereviews-finlandworkingtogethertosustainsuccess.htm),
Slovenia (http://www.oecd.org/gov/oecdpublicgovernancereviewsthepublicsectorsalarysysteminslovenia.htm) et al.