How about some public sector sacrifice, too?

Canada’s hefty job loss in March and April comes as no surprise. In total, we lost over three million jobs. Another 2.5 million of us are still employed but working fewer hours. Of 20.3 million people employed in February, 28 per cent have lost their jobs or are working fewer hours.

Not since the Great Depression have we seen job losses on this scale. But let’s not confound these two historic economic contractions. Today’s sharp downturn is not a depression unless it lasts more than two years. We all hope that, once the virus is contained, that will not happen.

This recession is also unique in that employment losses are not the same across all industries. The Great Depression resulted from a general demand shock accompanied by monetary and fiscal contraction. This recession involves sector-specific demand- and supply-shocks due to health restrictions and social distancing, offset by impressive injections of fiscal and monetary liquidity.

Employment losses also vary sharply across industries depending on whether employees can continue to work at a site or at home. Almost all of the current job losses (96 per cent) are in the private sector, with hours lost varying from 63.8 per cent in accommodation and food services to just 8.7 per cent in the utility sector.

Public sector workers have been little affected with working hours down only 5.6 per cent since February, less than in any other sector. As they have made clear, Canadians appreciate the efforts of many public employees carrying out essential services such as medical care, policing, firefighting and, yes, even tax collection. Statistics Canada estimates that threefifths of public employees are able to carry out tasks at home. Some are working reduced hours, if they are working at all, but continue to be paid their full salary by their public employers.

In this recession, the “haves” are those with employment and income security. In the private sector, people are continuing to work if their employers are in essential industries and are making enough income or receiving a large enough federal wage subsidy to keep their employees on the job.

Some employers without paying customers have had to let their workers go.

But not in the public sector. Governments not only provide jobs but continue paying the same wages and benefits even in distressed times — or even more: MPs declined to delay their scheduled wage hike in the midst of this job-destroying recession.

They are not crucial now but these issues about fairness in public and private sector compensation will become more contentious as the economy recovers. By this fall governments will be dealing with quite difficult budget planning issues after ramping up deficits and debt that will lead to higher carrying charges and potential credit downgrades in the future. To begin repairing public balance sheets, politicians will be faced with the unenviable choice of raising taxes, constraining spending or simply banking on economic growth to reduce the debt burden over time.

If governments boost taxes, private sector workers and employers already reeling from job losses and liquidity problems will resent having to pay more for highcost government spending. They will expect governments to achieve cost efficiencies and limit wage gains in the next several years.

And why not? At the end of 2019, the average wage rate in the public sector was $28 per hour, close to $55,000 a year (based on a 37.5-hour work week). This compares to an all-industry average of $21 per hour, or roughly $41,000 per year. Taking into account skill levels and other factors, Fraser Institute studies have estimated that public sector employees earn a wage premium equal to 12 per cent for comparable jobs. Normally, those with job security would be paid less not more than those facing risky outcomes.

Moreover, these estimated wage premiums do not include benefits. Many middle-income private sector workers, having themselves lost money in the stock and bond markets, will also experience poor investment performance in their defined-contribution plans and RRSPs. On the other hand, over four-fifths of public workers have defined-benefit pension plans with benefits effectively guaranteed by governments, i.e., taxpayers. These plans are often very generous. Some have inflation-indexed benefits. With the decline in interest rates and asset values, many public defined-benefit plans will go into deficit, requiring governments to fork over even more money to make them whole, with taxpayers again on the hook.

At close to $300 billion or 30 per cent of total public expenditure in 2020, employee compensation is a major part of delivery costs for federal, provincial and local government programs. To the extent that governments achieve better productivity in the public sector through innovation and better management, program unit costs could decline. Improved productivity could also provide opportunities to recognize hard-working public servants with better compensation or promotions.

Part of the productivity agenda should be to shed ineffective government spending programs and regulations. This would enable governments to focus on what they should do best, thus helping improve Canada’s economic performance.

If governments conclude the only way to deal with deficits is to hike taxes, public sector compensation will become a contentious issue. A straitened private sector will want to know why the public sector hasn’t constrained its payroll costs, too.

SOME EMPLOYERS WITHOUT PAYING CUSTOMERS HAVE HAD

TO LET THEIR WORKERS GO.