Public v private: just who is paid more?
Do public service workers really earn more than their counterparts in the private sector? Susan Edmunds looks at the numbers.
Carolyn hasn’t had a pay rise since 2019, when her salary increased by $5000 a year to just under $100,000. The Department of Corrections employee, whom Stuff has agreed not to name, was hoping for one last year but the department implemented a pay freeze for managers.
Now, the Government’s announcement of another three years of pay freeze for many public service workers means she’s likely to go five years between pay rises.
‘‘It doesn’t make me feel at all valued,’’ she says. ‘‘The cost of everything else is going up. It makes me feel like, ‘Stuff it, you don’t value my work, I might as well go and do something else’. It’s a kick in the teeth.’’
The Government announced this week that it intends there to be no increases for any public servant earning more than $100,000.
For those earning between $60,000 and $100,000, increases will be available only if there is ‘‘serious recruitment pressure’’.
Those earning under $60,000 – about a quarter of the 429,500-strong sector – will still be eligible for a rise.
When they laid out the plans, ministers Chris Hipkins and Grant Robertson said they would not include any provision for inflation or cost-of-living increases – ‘‘because public sector pay had outpaced inflation and private sector pay prior to Covid-19’’.
Carolyn isn’t convinced. ‘‘I think I am well-paid but I think it’s commensurate with the job I do.’’
The Public Service Commission releases data each year detailing the pay rates of the sector.
In the year to June last year, the average salary was $84,500, up 3.9 per cent from the previous year. The median public sector salary was $72,600. Public sector workers take an average 7.6 sick and domestic leave days a year, down from 8.6 in 2016.
For that same period, the Public Service Commission said private sector workers had a pay increase of 2.5 per cent.
Stats NZ data shows that, in the March quarter of this year, the average pre-tax salary for the country as a whole was $1328.43 a week for full-time workers, or $69,078 a year. The median income was $1080 a week, or $56,160.
Stats NZ said in the year to the March quarter, public sector pay rose 1.8 per cent while the private sector rose 1.6 per cent. A year earlier, the increases were 3.2 per cent and 2.4 per cent, respectively.
Craig Renney, an economist at the Council of Trade Unions, says whether the public sector could be said to be paying better depends on which parts are included. ‘‘Are we comparing apples with apples?’’
Some segments of the public sector required higher qualifications and would generally be better paid. The public sector was also more unionised, which often resulted in bigger and more frequent wage increases.
The education sector had a 3.6 per cent increase in pay in the year to December 2020, supported by payments to teacher aides to settle their pay-equity claim and increases from teachers’ collective agreements. Health sector wage growth was 2.1 per cent in the same year.
There would be variation, Renney says. Contractors employed by private companies but deployed in the public sector would probably be paid more than public sector employees working alongside them, but nurses working in a state-owned elderly care facility might get better pay than they would in the private sector.
He says the freeze will not affect people who have already agreed pay rises over the next few years, so there will be significant variation in its impact.
Departments that have a higher proportion of staff in operational and service delivery jobs tended to have a lower average salary, such as the Ministry of Justice, Department of Corrections, Ministry of Social Development, Department of Conservation and Customs Service.
Agencies with more staff in leadership had higher average salaries.
‘‘Wages have increased slower in the public service over the past decade than in the private sector,’’ says PSA national secretary Kerry Davies.
‘‘The data about public sector salaries can be misleading. If you group senior executives and highlevel managers together with library assistants and contact centre workers, it doesn’t really give you an accurate picture.
‘‘The Government wants pay restriction for public servants who earn between $60,000 and $100,000, but most people in that group are a lot closer to $60,000 than $100,000.
‘‘Public servants value the work they do and the communities they work for. All they want is to be valued too.’’
According to the Public Service Commission, in 2020, the average salary was highest for managers ($145,000), followed by policy analysts ($105,000), ICT professionals and technicians ($99,400), legal, HR and finance professionals ($97,600) and information professionals ($92,900).
By contrast, social, health and education workers ($73,800), inspectors and regulatory officers ($67,200), clerical and administrative workers ($62,500) and contact centre workers ($56,500) had lower average salaries.
Teachers can earn a maximum base salary of $90,000 as of this year, and registered nurses a maximum of just under $80,000.
Renney says there could be recruitment challenges in areas where there were direct private competitors who could hire people without the threat of a pay freeze. That was likely to be muted by the relatively small number of roles that were also available in the private sector.
Otago University associate professor Helen Roberts, who has studied chief executive pay, says the chief executives of public organisations tend to be paid less than those in companies listed on the stock exchange.
In 2019, the Taxpayers’ Union’s ‘‘public sector CEO rich list’’ put Matt Whineray, chief executive of the NZ Super Fund, at the top of the public sector pay list. In the year to June 30, he was paid $928,500, down from $1.06 million a year earlier.
Roberts says pay levels for public sector chief executives are often set with assistance from external consultants, who benchmark their pay against private sector roles. But she says that is not always a fair comparison.
Public servants did not face the risk of a company going bankrupt under their watch, or uncertainty about demand for their product.
While private sector pay was sometimes designed to motivate decisions around risk and risk management, there were not the same risks attached to public sector roles.
‘‘Financial markets will discipline private sector chief executives if they do not deliver the returns expected by shareholders – investors will sell their shares and push the price down if they choose to stop investing in the firm.
‘‘This is not true in the public sector. Public sector chief executives cannot go bankrupt, they are allocated funding from government to pay employees, and they do not create wealth – they manage an allocation of resources assigned to them only.
‘‘Public sector chief executives do not compete in globalised markets and few compete for roles in the international labour market.
‘‘They are ‘entrenched’ to some degree after they are appointed. Given these differences, there is no reason why these two groups of chief executives should be paid similarly.’’
Pay disclosures lack transparency and are often difficult to understand, she says, which makes them harder to challenge.
‘‘The freeze is a good way of doing a thorough examination of pay levels at the top of the public servant scale and also throughout these organisations.’’
Infometrics economist Brad Olsen says it is hard to make a generalisation about who is better paid. ‘‘People who think of the public sector often think of the chief executive . . . I haven’t heard people say nurses and police officers are paid too much.
‘‘There’s certainly been a feeling in recent times that the public sector wage growth has been faster. Part of that has been driven by negotiations of pay agreements with the Government. Teachers are a standout.’’
He says there is a risk that people who feel undervalued might defect to the private sector and then end up contracted back at a higher rate.
The public sector were the people who had worked to keep the economy going over the past year, providing advice and ‘‘standing up the support the economy has benefited from’’, he says. ‘‘To see that and say no pay progress for the next three years is a bit of a slap in the face. An interesting kind of kindness.’’