pay-fullby David McLaren

A little while ago, two right-wing think-tanks, the Fraser Institute (FI) and the Canadian Federation of Independent Business (CFIB), took shots at public sector wages and benefits.

The CFIB’s report said that full time jobs averaged about $60,000 in the public sector and roughly $55,000 in private firms. A couple of days later, the FI claimed public worker compensation had risen 47% in less than a decade.

Clearly, public sector unions are out of control, right?

Conveniently, both reports came out just days before Ontario’s annual Sunshine List which is the Who’s Who of public servants earning over $100,000. Ontario Power Generation’s CEO made over $1.5 million last year. His CFO made $1.2 million. Many more—over 111,000 more (medical officers of health, school board officials, police chiefs and firemen)—made somewhere around the average: $127,000.

So a question: did the CFIB include compensation for public sector senior management in their calculations of average pay? It appears they did. Did they include the salaries of top executives in the private sector? It’s unclear because the authors are unclear about what data went into their calculations of average pay in the private sector.

Never mind, the CFIB and the FI come to their predictable conclusions anyway: Governments would save us overburdened tax payers billions if they reined in the salaries of over-paid and privileged public servants. Market forces should determine public compensation, as they do in the private sector.

Except, as Nobel laureate economist Paul Krugman points out, buying labour is not the same as buying butter. First of all, what the private sector pays its workers is largely a matter of choice now that union membership is at an all-time low. Take MacDonald’s for example.

Fast food franchises pay the minimum wage but the chains can afford to pay more. Fast food and retail service companies also like to keep their workers on a part time schedule. That way they don’t have to pay them as much in benefits (such as health care). In the US, economists have figured out that the fast food industry alone is off-loading their employee costs onto the public purse to the tune of $7 billion a year.

Aetna, a huge insurance company in the US has chosen to pay its lowest paid employees $16 an hour. The company figures it will cost them $100 million a year to do that, but they will save $200 million a year on turn-over costs and get a better employee in the bargain.

Let’s look at what “market forces” have done for the take-home pay of CEOs. In the UK, the average CEO gets paid 84 times what his or her average worker makes. In Australia, it’s 93 times; in Germany its 147 times; in the US its 345. In Canada the average CEO takes home 206 times what the average worker makes.

That’s the second highest rate in the G7. And yet, as the Conference Board of Canada has noticed, Canada has the 3rd highest rate of working age poverty among 17 similar economies.

Remember, during the “Golden Age of Capitalism” when Mad Men ruled the roost and television was new, private sector union membership was at its highest and the ratio of CEO pay to worker wages was at its lowest.

Let’s ignore the methodological problems of its study (such as relying on the 2011 voluntary census) and take the CFIB at its word: that the average wage of public servants is $60,000. If their bosses’ average pay is $127,000, then they are only making about twice what the workers under them are making.

Maybe it’s not that public servants are making too much. Maybe it’s that private sector workers are being paid too little.

There is a whole body of economic research whose message is crystal clear: workers who aren’t making a living wage are falling into poverty, drain publicly-funded services, and are a drag on economic recovery. But don’t believe me, read the Final Report of the Precarious Work Group of Peace and Justice Grey Bruce.

Ah, but you say, you need to pay CEOs 200 times what their workers make in order to attract and keep top executives. That’s what the market demands, right?

Well no, says a study recently done by two Canadian researchers. It seems likely that CEO pay is jacked up by other CEOs sitting on company boards because they know the guy (gals need not apply) and because they know their own compensation will go up too. Are market forces at work here, or is it something else?

I remember a documentary about the fall of that great Canadian company Nortel, looted many say by its own senior management. A long-retired executive of Nortel was asked, “But you can’t easily replace people in top positions, can you?” His answer: “In a heartbeat.”


David McLaren is a writer who has worked in government, the private sector and with civil society. He is running for the NDP in the upcoming federal election.



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