Monday, January 22, 2007

State public sector wages bills gallop away

We have Labor governments in each of our states and territories. According to the AFR editorial this morning (subscription only) the expenses of these governments in recent years have risen by an average of 7.5% per annum.

Most of this has gone on extra wages for public employees. In 2006-07 wages growth in Queensland will be 12.4% while in NSW and Victoria it will be 5.5% and 4.4% respectively. Teachers, nurses and police account for a fair portion of this increase but burgeoning bureaucracies add their share.

These trends reflect ties between the Labor Party and the union movement. You can see this in NSW where an election is due in March and where the police association are demanding another 3000 members. Against Treasury advice the NSW Government will provide an extra 750 police at an annual cost of $69 million. The nurses and teachers are always after more members and higher wages divorced from productivity gains. Indeed the ratbag Victorian teachers union has demanded a 30% increase in wages over 3 years without - of course - performance testing.

Of course governments should award such hefty gains only when unions agree to substantial workforce reform. But to quote the AFR this is not happening:

'State governments also cause themselves problems by resisting the concepts behind the federal government's WorkChoices policies and legislation. While the commonwealth wants to emphasise the contribution that individuals make to the workplace, state ministers - under the influence of unions - prefer to treat all workers equally, even though the value added by individual employees differs markedly.'

The states and territories have the capacity to squander the benefits of the current resources boom just as the commonwealth can. The Labor Party dinosaurs running state and territory governments are currently held in check by the commonwealth. What a disaster it will be if a Labor victory federally meant Rudd-style support, for an antiquated industrial relations system, was to give additional licence to the spendthrift states.


Anonymous said...

Harry, It's not as simple as you make out. To begin with, the police and teachers' unions are not affiliated to the Labor Party. The NSW government's decision to increase police numbers has everything to do with tablois law and order pressure and nothing to do with rewarding their mates.

The substantive economic point is that the costs of providing education and health services is growing in real terms. This is because there is relatively little productivity growth in these sectors, but their wage costs keep growing, not (necessarily) because of unions, but because teachers and nurses have other employment options and other sectors can afford to pay them more, because their productivity is growing. If the schools and hospitals want to keep their employees, they have to meet the market.

Private schools of course face the same pressures, which is why their fees keep rocketing up. Unions have no influence on private school wages.

As you know, the cost problem faced by the service sector was discovered by the economists William Baumol and William Bowen over 40 years ago.

None of which rules out the possibility that state governments could not do more to keep their costs under control. But even if they did all that they could, as the main providers of health, educatoin and police services, they would be confronted with these problems.

hc said...

Uncle Milton

The AFR pointed out that the increased numbers were produced by blind formulae without any basis in need. The most highly policed states such as NSW have the most crime annd the State Treasury opposed such increased numbers.

With respect to wage increases the opportunities for productivity gains in teaching will improve if individual teaching effectiveness is assessed and salary increases are not just based on seniority.

I am not suggesting a case for wage caps but for tying salary increases to improved performance and to industrial relations reforms. As the AFR point out this is goal of the human capital reforms pushed by the Council of Australian Governments.

Mr Rudd has already rejected industrial relations reform. Its hard to imagine that electing a Federal Labor government would lead to greater care in State government budgeting.

Anonymous said...

Harry, I am in all in favour of assessing individual teaching effectiveness and having performance-based salary increases.

Some private shools try to measure "value added" — the results their students got compared to what they "should" have got, based on aptitude. This information feeds into salary reviews.

But for all that, it is still really hard to get productivity improvements in education, that is, more outputs per unit of input. You might get higher quality output per unit of input, but that won't get your costs down.

As for the NSW Treasury opposing more spending on police, well of course they did. Opposing increases in spending is what Treasuries do.

Anonymous said...


why just come up with the same old stale complaint about individual teacher performance. If teaching at schools is anything like universities (I'll just assume that it is), then a fair part of the problem (and hence increasing productivity) presumably lies with a) managment; and b) the government, yet no-one complains about these guys. Also, as I'm sure you are well aware, for many subjects where there is a teacher shortage, even poorly performing teachers are better than no teachers, and making conditions worse is hardly going to fix that problem.

Personally, where I work, I think people probably waste 5-10% of their time trying to fix broken photocopiers and the like, another 10% moving their cars so they don't get parking fines etc., and another 10% filling in pointless administrivia and yet more doing in stuff you could employ someone on minimum wage to do. Other places I have worked people waste around 10% or so of their day because there is no decent food on campus. Its no surprise that productivity is low -- but its also clear to me that a lot of it doesn't lie with the individuals.

hc said...

Conrad, It may be a stale old issue - but for the union at least it is an issue.

Of course I agree with your comments re university management. In our Department we have one general staff servicing the administrative needs of 30 faculty.

Fred Argy said...

Harry, just to be even-handed, you should take a look at the surge in federal public service numbers since about 1999. I don't have the exact figures but when I last looked, the increase has been quite spectacular and as the executive service and graduates have steadily increased as a proportion of the total (you see few indians these days, only chiefs), I suspect the wage bill has been soaring too. You have the research facilities. Why not do some number crunching?

Fred Argy said...

And while you are at it, Harry, you might also check out the surging cost of federal government consultancies - which have more than doubled since 1994-5.

Anonymous said...


if you agree that managment is a problem, then its probably good to consider where the most productivity gains could be made. If you think that the biggest gains are to be made via managment (which surely it is -- in some of the places I have worked, a monkey could do a better job), then that presumably should be the first suggestion, versus individual monitoring of teachers -- where it isn't even clear that big gains could be made once you consider the cost of monitoring people (both long and short term).

Anonymous said...


Do you have any raw figures for the head count increases in the various states.

I get the feeling some are trying to hire their own constituency.

This is going to get ugly when recession hits as there won't be enough assets to sell like last time.

Anonymous said...

The interesting question is why there are almost no admin staff anywhere these days. Of course we haven't quite reached the paperless office ;-) and admin isn't reducing, but wherever I have been in the public service, the lower grades have been gradually wiped out. This means that only execs have their own PAs - everyone else pretty much does their own admin. Why this is, I have no idea - but it seems to be pretty universal.

As for performance pay, where it isn't universally awarded, there are two sucessful in a subjective area - having a good relationship with the Manager or being extremely difficult. Both seem to work - being an easy going hard worker is not generally a successful strategy

As for consultancies, it is interesting to note anecdotally that a natural source and destination for senior management in the public service seems to be with the KPMGs, pwCs etc. Execs move fairly freely between the two - consultancies are an almost inherent part of the modern public service.

Anonymous said...

Hi Nice Blog .I think HR understands the importance of other people tracking time--IT, Lawyers, non-exempt employees, but struggles with the idea of labor time management .