Tack­ling the wage bill

Jamaica Gleaner - - OPINION & COMMENTARY -

WHO RE­MEM­BERS that there is some­one in the Gov­ern­ment named Ruddy Spencer? He’s a min­is­ter in the Min­istry of Finance with re­spon­si­bil­ity for the pub­lic ser­vice, in­clud­ing, we sup­pose, lead­ing the re­or­gan­i­sa­tion of the pub­lic sec­tor and ne­go­ti­at­ing wages with em­ployee unions. In­so­far as he has been do­ing that, it has been hap­pen­ing very qui­etly.

But Mr Spencer’s ap­proach to his job, if he is to do it prop­erly, will soon have to change. For while we do not ex­pect a ca­cophonous en­gage­ment, he and other mem­bers of the Hol­ness ad­min­is­tra­tion will have to now ar­tic­u­late a broader and clearer com­pre­hen­sion of the Gov­ern­ment’s wage and pub­lic-sec­tor employment pol­icy if they hope to main­tain con­sen­sus around Ja­maica’s economic re­form pro­gramme. The is­sue is that Ja­maica is en­ter­ing an­other po­lit­i­cally sen­si­tive phase of its ar­range­ment with the In­ter­na­tional Mone­tary Fund (IMF).

Un­der the old IMF agree­ment, from which the coun­try is now tran­si­tion­ing, ma­jor at­ten­tion was paid, with sig­nif­i­cant success, to fis­cal con­tain­ment and macroe­co­nomic sta­bil­ity. The Gov­ern­ment’s debt, as a per­cent­age of GDP, has de­clined sharply; the Bud­get is bal­anced; the cur­rent ac­count deficit is now man­age­able; in­fla­tion is low; and growth has re­turned to the econ­omy.

But pub­lic-sec­tor re­form, in­clud­ing an un­der­tak­ing to lower the pub­lic-sec­tor wage bill, as a ra­tio of national out­put, was also part of the ex­tended fund fa­cil­ity, though not as rig­or­ously ad­dressed as the fis­cal cri­te­ria. For in­stance, in 2010, when the Ja­maican Gov­ern­ment en­tered an agree­ment with the IMF, the wage bill was close to 13 per cent of GDP. It was to have been re­duced to nine per cent. How­ever, a real expansion, rather re­duc­tion, of the Gov­ern­ment’s wage bill con­trib­uted to the col­lapse of that pact.


There was some head­way on wages dur­ing the four-year ten­ure of the Peo­ple’s National Party. It is now 10 per cent of GDP. The time to reach the bench­mark tar­get was, how­ever, de­ferred. Now it is firmly set un­der the new US$1.7-bil­lion standby ar­range­ment by the 2018-19 fis­cal year.

Re­duc­ing that wage-to-GDP ra­tio could in­clude the dis­place­ment of pub­lic-sec­tor jobs. So, it is not an un­der­tak­ing that gov­ern­ments, in­clud­ing this one, take to eas­ily. But in Ja­maica’s cir­cum­stance, it is an is­sue of sig­nif­i­cant merit.

In the cur­rent fis­cal year, for in­stance, the Gov­ern­ment projects to spend around J$170 bil­lion on wages and salaries, ex­clud­ing other com­pen­sa­tion and pen­sion. That amounts to ap­prox­i­mately 34 per cent of pro­jected ex­pen­di­ture and 38 per cent of tax rev­enues. When the wage bill is added to in­ter­est pay­ments on the coun­try’s debt, it amounts to 69 per cent of ex­pected tax earn­ings, or, put an­other way, af­ter pay­ing wages and in­ter­est costs, the Gov­ern­ment is left with un­der J$200 bil­lion to meet the rest of ex­pen­di­ture. In other words, it has lit­tle dis­cre­tionary room within which to op­er­ate.

The up­shot: It crimps on spend­ing on cur­rent ex­pen­di­tures, like buy­ing sup­plies for hos­pi­tals and schools or spend­ing on cit­i­zens’ se­cu­rity and jus­tice, of pub­lic in­fra­struc­ture – all of which are cru­cial to en­hanc­ing growth. That shows in rut­ted roads, poor garbage col­lec­tion, in­creased crime, and so on.

There can be dis­agree­ments on strat­egy, tac­tics and se­quenc­ing for achiev­ing these goals, but there is no doubt about the ef­fi­cacy of the pol­icy. It is for the Gov­ern­ment now to make co­her­ent and co­gent ar­gu­ments in its favour.

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