## INTRODUCTION ## Source details **Canonical URL:** [INTRODUCTION](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_040816ab.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_040816ab.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_040816ab.pdf.json) --- ### Content overview and scope - Provides introductory/front matter and table of contents for "CASE STUDIES ON MANAGING GOVERNMENT COMPENSATION AND EMPLOYMENT." - Date on the document: April 8, 2016. - Studies cover 20 countries: five advanced economies; six countries from sub-Saharan Africa; two countries in developing Asia; one country in the Middle East and North Africa; three countries in Latin America and the Caribbean; three countries in Central and Eastern Europe and the CIS. - Structure of each case study: institutional coverage and framework for setting and managing the wage bill; description of employment and compensation levels (including comparison with the private sector); challenges motivating reform; reforms implemented and lessons derived. ### Country case studies (selected page locations) - CÔTE D’IVOIRE — page 9 - EL SALVADOR — page 13 - FRANCE — page 16 - GHANA — page 22 - HONDURAS — page 27 - IRELAND — page 31 - JAMAICA — page 35 - KENYA — page 39 - KOSOVO — page 43 - MALAYSIA — page 46 - MALI — page 50 - MOLDOVA — page 54 - NETHERLANDS — page 59 - PHILIPPINES — page 62 - PORTUGAL — page 66 - ROMANIA — page 71 - SOUTH AFRICA — page 75 - TUNISIA — page 81 - UNITED KINGDOM — page 85 - ZIMBABWE — page 90 ### Common reform strategies and measures observed - Short-term and structural measures across cases: - wage freezes (typically across-the-board), - reforms to the compensation structure, - consolidating employment levels by limiting new hiring, mainly via attrition-based employment reductions, - permanent reductions through public sector restructuring, - strengthening payroll management. ### Key cross-country findings and policy lessons - General: - Most countries relied heavily on wage freezes; some relied on compensation-structure reforms; some reduced employment mainly via attrition; some strengthened payroll management. - Cross-cutting reform lessons: - Integrate administrative and financial management of human resources; centralize wage bill management to control recruitment, retirement projections, promotion policies, compensation structure and dynamics. - Adopt a medium-term approach to wage bill strategy to move from ad hoc measures to durable fiscal sustainability. - Limitations of prolonged across-the-board wage freezes: ineffective medium term; prompt non-transparent increases in bonuses and allowances; create inequities and distortions. - Policy considerations: - Centralize payroll and HR information systems. - Ensure wage adjustments consider macroeconomic conditions, fiscal availability, and public–private competitiveness. - Realign public sector pay toward private sector wages where substantial premiums exist. - Reform automatic/explosive sectoral pay regimes (example: health escalafon with 5-8 percent automatic raises) by suspending increases or limiting them (e.g., to 2 percent). - Limit new hiring and prioritize recruitment for strategic service delivery areas (education, health, security), using attrition where feasible. - Build contingencies into medium-term strategies to accommodate fiscal slippages and additional wage pressures. ### Selected country highlights, findings, and statistics - Côte d’Ivoire - Wage bill: increased from 6.3 to 7.4 percent of GDP in 2005–2015. - WAEMU average wage bill: 6.5 percent of GDP. - General government employment: increased from 1.3 to nearly 2 percent of the working-age population in 2000–2014. - 2009 commitment to increase wages by about 3.2 percent of GDP; only 1.2 percent of GDP increase approved and partially implemented; authorities recognized about 2.0 percent of GDP in arrears due to the wage freeze. - Projected medium-term recruitment: net increase in employment initially projected at about 60 percent in 2014–2022; about two-thirds in education and health; universal schooling program announced in 2015 would increase recruitment needs by about 20 percent in the medium term. - Medium-term strategy (2014–2020) aim: lower the wage bill from 44 to 35 percent of tax revenue. - IMF staff projection cited: annual real GDP growth of about 7.5–8 percent over the medium term. - El Salvador - General government compensation: increased 1.8 percentage points of GDP between 2008 and 2014. - Population growth: less than 2 percent during 2008–2014. - Number of general government positions: grew by more than 25 percent during 2008–2014. - Employment creation: 41,000 general government jobs created between 2008 and 2014; approximately 19,000 of these reflect growth in areas other than health care, education, or security. - Health sector pay regime (health escalafon): sets annual salary increases of 5-8 percent for employees in this sector. - Public–private wage gap: household surveys for 2010 and 2013 suggest, on average, a wage premium of 70 percent between the public and private sectors after controlling for characteristics. - Most compensation is wage pay (about 90 percent of total pay); in-kind benefits and allowances (including a Christmas bonus equal to about 1.5 times the minimum wage) vary by institution. - France - General government employment: represents about 20 percent of the total labor force. - Public entities outside general government account for about 5 percent of the total labor force. - Expenditure in government wages hovered around 13 percent of GDP in 2000–2015. - Career-based system with automatic progression mechanisms; base wages frozen since 2010; bonuses and allowances represent 20–30 percent of the wage bill. - Positive wage drift estimated at about 2 percent a year. - Central government wage bill declined over the last twenty years while local government wage bills increased rapidly; local governments created more than a quarter million jobs (about 5 percent of public employment) in 2002–2009 beyond those related to decentralization. - Recommended improvements: greater coordination linking wage bargaining and budgeting; medium-term recruitment and compensation policies; effective MoF control and monitoring of recruitments and wage negotiations; enhanced payroll and recruitment management systems for local governments. - Ghana - Compensation to GDP: 9¼ percent of GDP in 2014. - Compensation to public expenditure: 40 percent in 2014. - Public services employment: about 5½ percent of the labor force over 2009–2014. - SPS raised the wage bill by about 2 percentage points of GDP between 2009 and 2014; corresponds to an increase of about 28 percent in the wage bill over that period. - Table 2 (Compensation of employees, 2009–2014; In percent of GDP): - Compensation of employees: 2009 7.9; 2010 8.8; 2011 10.2; 2012 13.2; 2013 11.7; 2014 10.5; Change 2009-2014 2.6 - Current wages: 2009 7.2; 2010 7.4; 2011 8.4; 2012 10.0; 2013 9.7; 2014 9.2; Change 2009-2014 2.0 - Deferred wages: 2009 0.0; 2010 0.7; 2011 1.0; 2012 2.6; 2013 1.1; 2014 0.5; Change 2009-2014 0.5 - Pensions and gratuities: 2009 0.7; 2010 0.7; 2011 0.8; 2012 0.6; 2013 0.8; 2014 0.9; Change 2009-2014 0.2 - Public service employment (percent of labor force): 2009 5.4; 2010 5.4; 2011 5.6; 2012 5.8; 2013 5.9; 2014 5.6; Change 2009-2014 0.2 - Public pay relative to private sector: for professionals no pay gap after controls; for low-skilled workers public-private pay gap about 18 percent. - Honduras - Wage bill fluctuated between 11 and 14 percent of GDP over the past 15 years; after reaching 13 percent of GDP in 2013, declined to 11 percent of GDP in 2015. - Public-private premium after controls: 34 percent (low-skilled workers premium 87 percent; top of wage distribution a 10 percent penalty). - About 55 percent of the wage bill devoted to education; of that 55 percent, 90 percent is allotted to remuneration. - Teachers received an average 20 percent nominal increase in base wages in 2007–2009; government suspended indexation to minimum wages in 2010 with estimated savings of near 1 percent of GDP; suspension was later repealed. - Fiscal consolidation in 2014–2015 produced a total fiscal adjustment of 6.2 percent of GDP. - Measures implemented: wages frozen in nominal terms in 2014 and 2015; in sectors other than health care and education more than 80 percent of unfilled vacancies were eliminated; workforce reductions close to 60 percent of total employment in ENEE and HONDUTEL. - Potential savings from workforce reductions in ENEE and HONDUTEL of up to 1 percent of GDP (partly offset by severance costs). - Ireland - Public sector wage bill rose from 8.3 percent to 12.3 percent of GDP in 2000–2009, before falling during consolidation. - Haddington Road Agreement aimed for savings of €1 billion (0.5 percent of GDP) in 2013–2015. - By 2015 public sector wage levels were 9.7 percent of GDP (compared with 9.8 percent in 2005). - Wage bill as a percentage of overall public expenditure: 27.2 percent (advanced-country average 24.5 percent). - GDP growth estimated near 8 percent in 2015. - Lessons: ensure wage increases reflect productivity; account for nonwage compensation in benchmarking. - Jamaica - Budgetary government wage bill fluctuated around 10 percent of GDP for the past 15 years. - Medium-term objective: maintain the wage bill at 9 percent of GDP. - About one-third of the wage bill is devoted to non-base pay allowances and bonuses. - Contractual and temporary workers comprised around 20 percent of the wage bill in 2015; about 30 percent of these have contracts of less than one year. - Public-private pay premium increased from 10 percent in October 2011 to 23 percent in October 2014; for government workers with secondary education the premium was 44 percent in 2014. - Two-year wage agreement for 2015/16–2016/17 envisaged wage increases of 4 percent in 2015/2016 and 3 percent in 2016/2017. - Wage bill projected at 10.1 percent of GDP in FY2015/16. - Kenya - General government wages about 7.4 percent of GDP in FY 2013/14, up from 5.7 percent in FY 2009/10. - Subnational governments increased their wage spending by 1.5 percent of GDP compared to 2011/12. - Public wages exceed private comparators by about 20 percent on average. - Allowances account for well over 50 percent of gross salaries across all job groups. - Hiring freeze implemented as short-term measure; reform plan expected in August 2016 (as noted). - Kosovo - After independence in 2008 government wages grew almost three times faster than nominal GDP; average public sector wage exceeds average private wage by more than 30 percent. - Wage bill nearly 9½ percent of GDP; increased by 2 percentage points in 2010–2015. - Fiscal rule introduced to limit increase in the wage bill to no more than nominal GDP growth starting in 2018, with detailed specifications including a 0.5 percent allowance when nominal GDP grows by less than 0.5 percent and a three-year reversion requirement. - Malaysia - Wage bill increased by 0.9 percentage points, reaching 6.2 percent of GDP in 2014 (5.8 percent of GDP in 2011). - Wages account for an estimated 20.4 percent of government expenditure in 2014. - Allowances make up between 11 and 20 percent of the total wage bill. - Salary overruns averaged 15½ percent during 2006–12. - Mali - Central government employees: compensation amounted to one-fifth of central government expenses and one-third of budgetary revenue in 2015 (grants not included). - Central government employs about 40,000 staff; sub-national governments employ a similar number. - Contractual employees ratio increased from 29 percent in 2011 to 41 percent in 2015. - Government wage bill increased by nearly 1½ percentage points of GDP in 2000–2015. - Moldova - Wage bill: 9 percent of GDP in 2015. - Basic pay about 40 percent of total pay on average in 2011; bonuses and supplements substantial (example: bonuses in 2011 of 25 and 50 percent of basic salaries for many positions). - Student-teacher ratio and average school size: 1991: 13.8 and 437; 2013: 11 and 256. - Netherlands - Wage bill declined from 13½ to 9 percent of GDP in 1980–2000 and hovered around 9 percent thereafter. - Government employment slightly under 10 percent of the working-age population. - Health care employment increased about 45 percent in the past decade. - Philippines - National government wage bill around 5 percent of GDP in the past decade. - Employment about 5 percent of the working-age population. - K-12 expansion supported by 128,000 new teachers during 2010–14 (equivalent to 4 percent of the government workforce in 2015). - Performance-Based Bonus (PBB) introduced in 2012; PBB amounts in 2012 ranged from 5,000 pesos to 35,000 pesos (US$120 to US$830), with highest PBB equal to 10–18 percent of total compensation for clerical and junior technical staff, less than 5 percent for senior management. - Portugal - Wage bill increased from 12½ to 14½ percent of GDP in 1995–2005; by 2015 estimated at 11 percent of GDP. - General government employment declined from 14 to 11 percent of the working-age population in 2010–2015 (from 750,000 to about 660,000). - In 2010–2014 wage bill reduced by 2 percentage points and contributed to over two-thirds of total expenditure consolidation (~3 percentage points of GDP). - Legal constraints: Constitutional Court rulings reversed some measures; reversals by the 2015-elected government cost 0.3 percent of GDP. - Romania - Public wage bill increased from 8 to 11 percent of GDP in 2009–2011; fiscal deficit deteriorated from 0.7 to 7.1 percent of GDP. - Public sector average wage grew by 63 percent between 2005 and 2008. - Measures: furloughs, 25 percent nominal pay cut in July 2010 (partly reversed by Constitutional Court), hiring restriction one hire per seven separations in 2010, capping non-wage pay to 30 percent of base pay in 2011. - Proposed unified pay law approved in 2009 would have increased compensation expenditure by up to 1–2 percentage points of GDP and was not implemented. - South Africa - Wage bill rose from 8.2 to 11 percent of GDP in 2006–2010; at 11½ percent of GDP in 2015. - Bosch (2006) estimate: average public-sector compensation 35 percent higher than in the private sector (2005 data). - 2015 wage agreement cost overrun example: additional cost of R63.9 billion (1.5 percent of 2015/16 GDP). - 2015 agreement: 7 percent increase in salary in 2015/16; for 2016/17 and 2017/18 increases by inflation rate plus 1 percentage point. - Recommended reforms: stronger payroll and personnel management; simplify remuneration structure; link pay to performance; integrate pay reform into MTEF. - Tunisia - Wage bill about 13½ percent of GDP in 2015. - Number of civil service employees increased about 15 percent in 2010–2015 to about 631,000 workers. - In 2014 allowances amounted to about 60 percent of total compensation. - Ratio of average allowances to average basic salary: around 120 percent in 2011 to around 143 percent in 2014. - Public sector wage premium after controls: 18.2 percent. - Recent agreement (April 2015): base salary increase averaging 55 Tunisian dinars a month in 2016 and 2017; allowances increase averages about 43 dinar a month (effective July 2016) with automatic renewals in April 2017 and April 2018. - Medium-term consolidation target: reduce wage bill to 12 percent of GDP by 2020. - United Kingdom - Wage bill reached 10.6 percent of GDP at the end of 2008; rose to 11 percent of GDP with crisis effects. - In 2010 the U.K.’s debt position: more than 70 percent of GDP; fiscal deficit approximately 11 percent of GDP. - Pay freeze for two years with protections for the low paid; then 1 percent annual average pay award policy for central government workers. - Pension reforms projected to save approximately 430 billion pounds by 2060. - Short-term measures saved approximately 8 billion pounds in the last parliament and expected to save another 5 billion pounds in the next five years. - Office for Budget Responsibility estimate: more than half a million public sector jobs were lost in the last parliament; next five years will see a reduction of less than a hundred thousand jobs. - Zimbabwe - Wage bill about 55 percent of total spending in 2015; with pensions and transfers for wage purposes total employment costs would rise to over 65 percent of expenditure. - Employment to working-age population: 28 percent; labor force participation about 40 percent; unemployment about 30 percent of the active. - Civil Service Human Resource and Payroll Systems Audit identified potential wage bill savings of US$170 million a year. - FY2016 budgets prepared on the basis of hiring and salary freezes remaining in place for next three years. ### Institutional and technical recommendations (synthesized) - Centralize and integrate payroll and HR information systems to reduce inconsistencies and improve budget and cash management. - Assign gatekeepers and strengthen MoF oversight for recruitment, promotions, separations, and payroll inclusion. - Adopt medium-term wage bill strategies and anchor targets in fiscal frameworks (MTEF). - Build contingencies into strategies to manage fiscal slippages and election- or politically driven wage pressures. - Limit reliance on prolonged across-the-board freezes; instead target base pay, allowances, and promotions; reform automatic progression mechanisms. - Prioritize hiring for education, health, and security; use attrition-based reductions where feasible and avoid youth-biased dismissals. - Reform allowance systems and sector-specific statutory pay regimes that generate automatic large increases. - Use performance-related pay where credible appraisal systems exist and ensure PBB/PRP designs minimize gaming and morale issues. - Strengthen social dialogue and sequencing of bargaining to align settlements with budget envelopes; consider independent pay review bodies. *International Monetary Fund — Case Studies on Managing Government Compensation and Employment — INTRODUCTION (April 8, 2016).* ### INTRODUCTION __________________________________________________________________________________ 7 ### INTRODUCTION ### Content overview - This content unit provides the introductory/front matter and table of contents for "CASE STUDIES ON MANAGING GOVERNMENT COMPENSATION AND EMPLOYMENT." - Date on the document: April 8, 2016. - It lists country case studies, figures, tables, references, and a glossary. ### Country case studies and page locations - CÔTE D’IVOIRE — page 9 - A. Institutional Background — page 9 - B. Trends and Issues — page 10 - C. Reform Challenges and Lessons — page 12 - EL SALVADOR — page 13 - A. Institutional Background — page 13 - B. Trends and Issues — page 14 - C. Reform Challenges and Lessons — page 15 - FRANCE — page 16 - A. Institutional Background — page 16 - B. Trends and Issues — page 17 - C. Reform Challenges and Lessons — page 20 - GHANA — page 22 - A. Institutional Background — page 22 - B. Trends and Issues — page 22 - C. Reform Challenges and Lessons — page 24 - HONDURAS — page 27 - A. Institutional Background — page 27 - B. Trends and Issues — page 27 - C. Reform Challenges and Lessons — page 29 - IRELAND — page 31 - A. Institutional Background — page 31 - B. Trends and Issues — page 32 - C. Reform Challenges and Lessons — page 34 - JAMAICA — page 35 - A. Institutional Background — page 35 - B. Trends and issues — page 36 - C. Reform Challenges and Lessons — page 37 - KENYA — page 39 - A. Institutional Background — page 39 - B. Trends and Issues — page 39 - C. Reform Challenges and Lessons — page 41 - KOSOVO — page 43 - A. Institutional Background — page 43 - B. Trends and Issues — page 43 - C. Reform Challenges and Lessons — page 44 - MALAYSIA — page 46 - A. Institutional Background — page 46 - B. Trends and Issues — page 47 - C. Reform Challenges and Lessons — page 48 - MALI — page 50 - A. Institutional Background — page 50 - B. Trends and Issues — page 51 - C. Reform Challenges and Lessons — page 53 - MOLDOVA — page 54 - A. Institutional Background — page 54 - B. Trends and Issues — page 55 - C. Reform Challenges and Lessons — page 56 - NETHERLANDS — page 59 - A. Institutional Background — page 59 - B. Trends and Issues — page 59 - C. Reform Challenges and Lessons — page 60 - PHILIPPINES — page 62 - A. Institutional Background — page 62 - B. Trends and Issues — page 62 - C. Reform Challenges and Lessons — page 63 - PORTUGAL — page 66 - A. Institutional Background — page 66 - B. Trends and Issues — page 67 - C. Reform Challenges and Lessons — page 68 - ROMANIA — page 71 - A. Institutional Background — page 71 - B. Trends and Issues — page 71 - C. Reform Challenges and Lessons — page 72 - SOUTH AFRICA — page 75 - A. Institutional Background — page 75 - B. Trends and Issues — page 76 - C. Reform Challenges and Lessons — page 78 - TUNISIA — page 81 - A. Institutional Background — page 81 - B. Trends and Issues — page 82 - C. Reform Challenges and Lessons — page 84 - UNITED KINGDOM — page 85 - A. Institutional Background — page 85 - B. Trends and Issues — page 86 - C. Reform Challenges and Lessons — page 88 - ZIMBABWE — page 90 - A. Institutional Background — page 90 - B. Trends and Issues — page 91 - C. Reform Challenges and Lessons — page 92 ### Figures (numbered) - 1. Côte d’Ivoire: Wage Bill and Employment — page 10 - 2. El Salvador: Wage Bill and Employment — page 14 - 3. France: Wage Bill and Employment — page 18 - 4. France: Public Sector Wage Premium — page 18 - 5. France: Teachers’ Statutory Salaries after 15 Years, 2012 — page 19 - 6. France: Wage Bill by Levels of Government — page 19 - 7. Employment by Levels of Government — page 19 - 8. Ghana: Wage Bill and Employment — page 23 - 9. Honduras: Wage Bill and Employment — page 28 - 10. Ireland: Wage Bill and Employment — page 33 - 11. Jamaica: Wage Bill and Employment — page 36 - 12. Kenya: Wage Bill and Employment — page 40 - 13. Kenya: Average Earnings by Sector, 2008–2013 — page 41 - 14. Kenya: General Government Wage Bill by Sector — page 41 - 15. Kosovo: Wage Bill and Employment — page 44 - 16. Malaysia: Wage Bill and Employment — page 47 - 17. Malaysia: Trends in Federal Level Personnel Emoluments — page 48 - 18. Mali: Wage Bill and Employment — page 52 - 19. Mali: Wage/Taxes, Regional Comparison — page 52 - 20. Mali: Wage/GDP, Regional Comparison — page 52 - 21. Moldova: Wage Bill and Employment — page 55 - 22. Moldova: Remuneration of the Government Relative to the Private Sector — page 56 - 23. Netherlands: Wage Bill and Employment — page 60 - 24. Philippines: Wage Bill and Employment — page 63 - 25. Portugal: Wage Bill and Employment — page 67 - 26. Portugal: Public Sector Wage Premium — page 68 - 27. Romania: Wage Bill and Employment — page 72 - 28. Romania: Average Monthly Wages — page 73 - 29. South Africa: Wage Bill and Employment — page 76 - 30. South Africa: Medium-Term Wage Bill Projections and Outturns — page 78 - 31. Tunisia: Wage Bill and Employment — page 82 - 32. Tunisia: Relative Contributions of Wages and Employment to Wage Bill Growth, 2010–2014 — page 83 - 33. Tunisia: Central Government Wage Bill by Component — page 83 - 34. United Kingdom: Wage Bill and Employment — page 86 - 35. Zimbabwe: Wage Bill and Employment — page 91 ### Tables (numbered) - Table 1. List of Case Studies — page 8 - Table 2. Ghana: Compensation of Employees, 2010–2014 — page 24 - Table 3. Jamaica: Government Employment by Contract Type — page 35 - Table 4. Moldova: Student-Teacher Ratio and Average School Size — page 57 - Table 5. Philippines: The Amount of the Performance-Based Bonus in 2012 — page 64 ### Glossary (selected acronyms listed) - CIS - CSD - COFOG - DPER - ENEE - EU - FAD - GFS - CG - GG - GUSS - HR - HONDUTEL - IBEC - IT - KIPPRA - LIDCs - MoF - MTEF - NFPS - ODAC - OECD - OSD - MDA - PBB - PRP - PSBB - PSCBC - TPSD - SNG - SOE - SSL - SPS - WAEMU *Case Studies on Managing Government Compensation and Employment — INTRODUCTION (April 8, 2016).* ### INTRODUCTION ### INTRODUCTION ### Scope and selection of case studies - The supplement presents country case studies reviewing country experiences with managing wage bill pressures; these case studies are the basis for the compensation and employment reform lessons identified in the main paper. - The studies cover 20 countries, including: - five advanced economies, - six countries from sub-Saharan Africa, - two countries in developing Asia, - one country in the Middle East and North Africa, - three countries in Latin America and the Caribbean, - three countries in Central and Eastern Europe and the CIS. - The structure of each case study: institutional coverage and framework for setting and managing the wage bill; description of employment and compensation levels (including comparison with the private sector); challenges motivating reform; reforms implemented and lessons derived. ### Common reform strategies and measures observed - The case studies provide an overview of wage bill reform strategies that include both short-term wage and employment measures and structural and institutional reforms. - Common measures observed across cases: - wage freezes (typically across-the-board), - reforms to the compensation structure, - consolidating employment levels by limiting new hiring, mainly via attrition-based employment reductions, - permanent reductions through public sector restructuring, - strengthening payroll management. ### Key findings and country-specific evidence (selected highlights) - General - Most case study countries relied heavily on wage freezes as part of reform design; a few relied on compensation-structure reforms; some reduced employment mainly via attrition; some strengthened payroll management. - Côte d’Ivoire - Wage bill: increased from 6.3 to 7.4 percent of GDP in 2005–2015. - WAEMU average wage bill: 6.5 percent of GDP. - General government employment: increased from 1.3 to nearly 2 percent of the working-age population in 2000–2014. - Political and fiscal commitments and arrears: a 2009 commitment to increase wages by about 3.2 percent of GDP, of which only 1.2 percent of GDP increase was approved and partially implemented; authorities recognized about 2.0 percent of GDP in arrears due to the wage freeze. - Projected medium-term recruitment: net increase in employment initially projected at about 60 percent in 2014–2022, with about two-thirds in the education and health sectors; universal schooling program announced in 2015 would increase recruitment needs by about 20 percent in the medium term. - Medium-term strategy (2014–2020) aim: lower the wage bill from 44 to 35 percent of tax revenue (a WAEMU convergence criterion). - Strategy design concerns: - will sharply increase the wage bill to tax revenue ratio in 2014–2015, postponing reductions until the end of the projection period, - relies on optimistic projections (real GDP growth of 10 percent), - lacks contingencies to accommodate additional wage pressures. - IMF staff projection cited: annual real GDP growth of about 7.5–8 percent over the medium term. - Institutional issues: fragmentation of wage and human resource management across ministries; payroll managed by the ministry of finance, civil service ministry regulates recruitments and terms; police and military (about 30 percent of employment) manage compensation and employment independently; inconsistent IT systems and delays (usually more than one year) between recruitment and first salary payment. - El Salvador - General government compensation: increased 1.8 percentage points of GDP between 2008 and 2014. - Population growth: less than 2 percent during 2008–2014. - Number of general government positions: grew by more than 25 percent during 2008–2014. - Employment creation: 41,000 general government jobs created between 2008 and 2014; approximately 19,000 of these reflect growth in areas other than health care, education, or security. - Health sector pay regime (health escalafon): sets annual salary increases of 5-8 percent for employees in this sector. - Public–private wage gap: household surveys for 2010 and 2013 suggest, on average, a wage premium of 70 percent between the public and private sectors after controlling for characteristics; the premium is larger for those with relatively little education. - Institutional features: most compensation is wage pay (about 90 percent of total pay); in-kind benefits and allowances (including a Christmas bonus equal to about 1.5 times the minimum wage) vary by institution; human resources management is decentralized across more than 90 general government institutions. - France - Data and coverage: compensation and public employment are well recorded and captured in the fiscal accounts; data covers central and local governments across sectors. - General government employment: represents about 20 percent of the total labor force. - Public entities outside general government (state-owned enterprises) and private entities mostly financed by public resources: account for about 5 percent of the total labor force. - Institutional arrangements: ministry of finance oversees the wage bill and payroll; civil service ministry defines recruitment needs and employment conditions; MoF approves recruitments and manages payroll; a unified legal framework covers wage bargaining; prime minister decides on wage increases after social dialogue. - Recent containment strategy: initially relied on reducing employment via attrition and then on across-the-board wage containment; limited effect on wage bill-to-GDP because public employment reductions were reversed and low inflation limited the wage freeze’s effectiveness. - System features: career-based system with automatic progression mechanisms; base wages frozen since 2010; bonuses and allowances represent 20–30 percent of the wage bill; compensation has become progressively linked to performance with differing performance pay systems across ministries. - Potential future pressures: recruitment needs in the defense sector and embedded wage drift. ### Cross-country reform challenges and lessons - Integrate administrative and financial management of human resources: - Allocating human resources management and financial management to separate ministries undermines a comprehensive approach to wage bill sustainability. - Centralizing wage bill management is recommended to control drivers of spending: recruitment needs, retirement projections, promotion policies, and compensation structure and dynamics. - Adopt a medium-term approach: - Developing countries commonly rely on ad hoc measures in response to crises rather than systematic wage negotiation and recruitment frameworks. - A medium-term wage bill strategy helps shift from ad hoc short-term budget preparation to durable fiscal sustainability measures. - Limitations of prolonged across-the-board wage freezes: - Across-the-board freezes, especially when applied to base salary and automatic progression mechanisms, are not effective over the medium term. - Prolonged freezes lead to non-transparent increases in bonuses and allowances, create inequities among civil servants, reinforce distortions in the public compensation system, and complicate human resource management. - Policy considerations highlighted in country lessons: - Centralize payroll and HR information systems to reduce inconsistencies and improve budget and cash management. - Ensure wage adjustments consider macroeconomic conditions, fiscal availability, and public–private competitiveness. - Realign public sector pay toward private sector wages where a substantial premium exists (e.g., El Salvador’s 70 percent premium). - Reform explosive sectoral pay regimes (e.g., health escalafon with 5-8 percent automatic raises) by suspending increases until parameters are revised or by limiting increases (for example to 2 percent). - Limit new hiring and prioritize recruitment for strategic service delivery areas (education, health, security), using attrition-based reductions where feasible. - Build contingencies into medium-term strategies to accommodate potential fiscal slippages and additional wage pressures. *Source: IMF staff (INTRODUCTION, case study excerpts and Table 1 data).* ### Appendix to the draft 2015 Budget Law (Ministère de la decentralisation et de la fonction publique, 2015). ### Appendix to the draft 2015 Budget Law (Ministère de la decentralisation et de la fonction publique, 2015) ### France — Institutional features and staff management - Civil servants have a special legal framework (statute) with protections and severance benefits beyond general labor market regulation. - Political appointments are only at senior levels. - Line ministries decide on promotion; the MoF sets a ratio for promotions in the central government (number of people promoted/number of people eligible for promotion). - Government employees can only relocate with the joint consent of the ministry and the employee. - Staff can be employed on a contractual basis in some sectors and job categories. - Contractual employees accounted for 17 percent of general government employment in 2013. ### France — Trends and key statistics - Expenditure in government wages hovered around 13 percent of GDP in 2000–2015. - Government employment has remained stable as a share of the working-age population, but at high levels relative to other advanced economies. - France appears to rely more on public employment to achieve policy goals; short-term contracts for the unemployed accounted for about two-thirds of the net increase in public employment in 2013 and 2014. - There does not seem to be a public wage premium: controlling for employee characteristics, public wages are 3½ percent lower than in the private sector (with a negative wage gap of about 10 percent for the better educated and a positive gap of about 6 percent for the less educated). - Experienced teachers receive comparatively lower salaries than the European average and large EU countries (except Italy). - About 150,000 employees were transferred to ODAC since 2009, particularly universities. - The central government wage bill has declined over the last twenty years while local government wage bills increased rapidly; local governments created more than a quarter million jobs (about 5 percent of public employment) in 2002–2009 beyond those related to decentralization. - The central government has limited leverage over local governments because of constitutionally guaranteed fiscal autonomy. - Despite control rules (requirements for supplementary budgets when the wage bill exceeds the budget, restrictions on carrying underspending forward, bans on reallocating resources to wages), the central government wage bill was overexecuted by about 0.5 percent on average from 2009–2014 (attributed to underestimation in defense and weaker control in local governments and hospitals). - The positive wage drift (impact of step progression and promotions) is estimated at about 2 percent a year and has outpaced the negative wage drift from lower-paid recruitments replacing higher-paid retirees. ### France — Reform challenges, policy responses, and lessons - The wage bill accounts for about a quarter of public spending; containment efforts have focused on limiting nominal growth of the wage bill. - A 2007 spending review aimed to restructure and improve efficiency but implementation fell short; reliance was placed on spending containment rather than structural reforms. - Containment measures: - Employment caps from 2006 and attrition targets (replacing only 1 of 2 retiring civil servants) from 2007–12. - Since 2012, stabilization of employment with large recruitments in education offset by decreases in other sectors (notably defense). - Public sector wage scale frozen since 2010 for all levels of government, with selective increases at lower wage levels. - Outcomes: - Wage bill modestly reduced by 0.3 percentage points of GDP in 2009–2011. - Employment started to bounce back after 2013. - Recommended improvements: - Greater coordination to link wage bargaining and budgeting, adopting a medium-term approach to recruitment and compensation policies. - Identify priority sectors for recruitments and pay increases; decentralize some bargaining to address sector-specific issues while containing base pay increases. - Effective MoF control and monitoring of recruitments and wage negotiations. - Enhanced payroll and recruitment management systems for local governments, potentially mirroring central government systems. - Focus on employment controls rather than base pay reductions given public pay appears low relative to private sector comparators. - Thorough staffing reviews and process streamlining across labor-intensive sectors such as health and education. - Rationalize municipal employment supported by reforms to reduce overlap (intercommunalités) and more stringent legal control of local governments’ employment practices by préfet-level central government offices. - Ensure working hours are effectively not lower than the 35 hour work week to maintain service delivery amid employment reductions. --- ### Ghana — Institutional background and SPS introduction - The Single Spine Salary (SPS) structure became effective January 1, 2010, covering most general government employees under a common compensation framework. - Objectives of the SPS: increase equity within the public service, ensure fiscal sustainability of the wage bill, simplify bargaining, and better connect pay and productivity. - Four main entities manage public service compensation and employment: - Public Services Commission: human resource management, criteria for appointments, career development, manpower reviews. - Fair Wages and Salaries Commission: implementation of pay policies, wage setting, grading of posts, linking pay with productivity. - Ministry of Finance (MoF): sets compensation budget consistent with wage policies and employment levels; monitors payroll; provides advice on wage negotiations based on fiscal resources. - Controller and Accountant General’s Department: manages payroll, processes pays and allowances. - Each service retains some latitude to manage its workforce; offices (e.g., Office of the Head of the Civil Service) exist in services to manage training, performance tracking, and program monitoring. ### Ghana — Trends and key statistics - Compensation to GDP: 9¼ percent of GDP in 2014. - Compensation to public expenditure: 40 percent in 2014. - Public services employment remained about 5½ percent of the labor force over 2009–2014. - Estimated fiscal impact of SPS: - SPS raised the wage bill by about 2 percentage points of GDP between 2009 and 2014. - This corresponded to an increase of about 28 percent in the wage bill over that period. - Table 2 (Compensation of employees, 2009–2014; In percent of GDP): - Compensation of employees: 2009 7.9; 2010 8.8; 2011 10.2; 2012 13.2; 2013 11.7; 2014 10.5; Change 2009-2014 2.6 - Current wages: 2009 7.2; 2010 7.4; 2011 8.4; 2012 10.0; 2013 9.7; 2014 9.2; Change 2009-2014 2.0 - Deferred wages: 2009 0.0; 2010 0.7; 2011 1.0; 2012 2.6; 2013 1.1; 2014 0.5; Change 2009-2014 0.5 - Pensions and gratuities: 2009 0.7; 2010 0.7; 2011 0.8; 2012 0.6; 2013 0.8; 2014 0.9; Change 2009-2014 0.2 - Public service employment (percent of labor force): 2009 5.4; 2010 5.4; 2011 5.6; 2012 5.8; 2013 5.9; 2014 5.6; Change 2009-2014 0.2 - Public pay relative to private sector: - For professionals: no pay gap after controlling for gender, education, and experience. - For low-skilled workers: public-private pay gap about 18 percent (an 18 percent pay premium for the low skilled). - Policy medium-term objective: keep the share of public wages in revenue under 35 percent while maintaining competitiveness of public service compensation and ensuring service delivery (35 percent wage bill to tax revenue is a WAEMU convergence criterion). ### Ghana — Reform challenges and lessons - Fragmentation of human resource management across services and agencies complicated reforms; services were allowed to opt out of the Ghana Universal Salary Structure (GUSS), creating disparate pay structures and practices in hiring, promotion, mobility, and separation. - Gradual implementation of SPS (2010–2014) created deferred (retroactive) payments and timing issues that pressured wages upward for those remaining in the old pay structure. - Absent discretionary adjustments tied to late integration, the wage bill would have remained under 7.5 percent of GDP; average public pay would still have increased in line with GDP per worker. - Wage bargaining was not simplified as intended: negotiations included adjustments to pay relativity and step increments, which risk increasing wages disproportionately for higher grades and require careful job-responsibility reviews and remapping to the SPS grid. - Strengthening collaboration and central oversight recommended: - Assign a gatekeeper in each service for HR process stages (new posts, payroll inclusion, promotions, separations) in coordination with the MoF. - Consider explicit promotion budgets (ceilings on number of promotions per year by agency). - Improve HR data management with modern IT systems to manage, share, and cross-check wage bill information. - Fiscal caution required when introducing a new pay scale: guaranteeing no worker is worse off typically increases compensation expenditure during transition. - Ensure public pay competitiveness via periodic reviews vis-à-vis the private sector; implement protocols for grade re-evaluation based on skills and labor market developments rather than ad hoc adjustments and allowances. - Over time, a single spine can simplify bargaining by focusing on base wage increases (first step of the spine) and allow transition to a multiyear wage framework with stable inflation. --- ### Honduras — Institutional background and compensation framework - Public sector composition: central administration (line ministries), decentralized institutions (public pension funds, social security, small entities, local governments), and public companies (eight main public enterprises; HONDUTEL and ENEE largest). - Separate compensation frameworks (estatutos) exist for different worker types (civil servants, doctors, dentists, pharmaceutical chemists, teachers, microbiologists, social workers, nurses). - Public company workers’ pay is generally defined by collective agreements. - Around 95 percent of the public workforce has permanent positions. - Typical compensation composition: - Base wage: 60 percent of total compensation on average. - Allowances: 31 percent. - Social benefits: 9 percent. - Compensation frameworks differ in regulations, pay composition, and update rules; examples: - Teachers’ estatuto ties base wages to the minimum wage. - Pharmaceutical chemists’ estatuto stipulates a fixed 20 percent annual increase in wages. ### Honduras — Trends and key statistics - The wage bill fluctuated between 11 and 14 percent of GDP over the past 15 years. - After reaching 13 percent of GDP in 2013, the wage bill declined to 11 percent of GDP in 2015. - As a percent of the working-age population, public employment is about the LIDC average and declined in the past year after stability in 2011–2013. - Public sector wages appear high relative to the private sector: - Estimated public-private premium after controls: 34 percent. - Premium distribution: low-skilled workers premium 87 percent; top of wage distribution a 10 percent penalty. - Significant pressures from education sector: - About 55 percent of the wage bill devoted to education; of that 55 percent, 90 percent is allotted to remuneration. - Teachers received an average 20 percent nominal increase in base wages in 2007–2009 and indexation to minimum wages starting in 2010 under a special agreement (“Programa de ajuste social y calidad educativa”). - The government suspended indexation to minimum wages in 2010 with estimated savings of near 1 percent of GDP; suspension was later repealed and pressures resumed. - Fiscal impact: - A large wage bill combined with an ambitious public investment schedule contributed to a record fiscal deficit in 2013. - After consolidation efforts, the wage bill to GDP declined from 12.8 to 10.9 percent of GDP in 2013–2015. - Consolidation including freezing wages, eliminating vacancies, and enhancing oversight contributed to the NFPS wage bill declining 2.3 percent of GDP. ### Honduras — Reform challenges and lessons - Containing compensation was central to fiscal consolidation after the 2013 deficit peak. - Key policy measures implemented since 2014: - Freezing wages. - Eliminating vacancies. - Enhancing oversight of employment and compensation. - Persistent challenges include politically influential groups (teachers) securing concessions that raise wage pressure and indexation rules that can reintroduce fiscal strain. - Reform priorities implied by experience: - Strengthen rules and oversight to prevent indexation or statutory clauses that generate large automatic wage increases. - Improve coordination between sectoral estatutos and central budget authorities to avoid unbudgeted wage growth. - Rightsize public employment while protecting essential service delivery, especially in education and health. *Source: Appendix to the draft 2015 Budget Law (Ministère de la decentralisation et de la fonction publique, 2015).* ### 6.2 percent of GDP total fiscal adjustment observed in 2014–2015.To dent the relatively high levels ### 6.2 percent of GDP total fiscal adjustment observed in 2014–2015.To dent the relatively high levels ### Honduras — measures, results, and remaining reforms - Fiscal consolidation in 2014–2015 produced a total fiscal adjustment of 6.2 percent of GDP. - Measures implemented: - Wages were frozen in nominal terms in 2014 and 2015. - To control hiring, in sectors other than health care and education more than 80 percent of unfilled vacancies were eliminated. - A census of public employment was implemented to identify irregular (ghost) workers. - A sizeable reduction in the workforce was implemented in the social security administration in response to a corruption scandal. - Downsizing in energy and telecommunications: workforce reductions close to 60 percent of total employment in ENEE and HONDUTEL. - Fiscal impact and costs: - Potential savings from workforce reductions in ENEE and HONDUTEL of up to 1 percent of GDP. - These savings are partly offset by the cost of severance payments for dismissed workers. - Legal and operational features: - The Honduran labor code allows suspension of workers when the company does not have profits; after four months suspension, redundant workers can be dismissed with payment of corresponding severances. - The experience highlights the value of having a flexible employment framework and minimizing contingent legal risks from reinstatement lawsuits. - Remaining reform priorities: - Develop an exit strategy from short-term measures such as across-the-board freezes. - Reduce the numerous compensation frameworks and create a transparent mechanism to link wage increases with productivity. - Introduce a flexible employment framework and strengthen labor market institutions. - Implement a unified wage bill management to address fragmentation of wage regimes. ### Deeper fiscal reforms needed (Honduras) - Rationale: - In a country with high social and infrastructure needs, new spending pressures are likely to emerge. - To address demands in an ordered way without sacrificing long-term sustainability, achievements of the last two years need to be locked in. - Recommended structural reforms: - Introduce an enforceable medium-term fiscal framework. - Strengthen the public financial management system. - Strengthen labor market institutions to support a more flexible wage policy based on productivity and merit indicators. - Implement unified wage bill management to reduce fragmentation. ### Ireland — history, consolidation, and lessons - Institutional background: - Long history from 1987 of collective wage bargaining centered on a social partnership model; seven national agreements between 1987 and 2008. - Since 2009 collective bargaining focused on the public sector with agreements including the Public Service Agreement 2010–2014 (“Croke Park Agreement”) and the Public Sector Stability Agreement 2013–16 (“Haddington Road Agreement”). - Trends and fiscal measures: - Public sector wage bill rose from 8.3 percent to 12.3 percent of GDP in 2000–2009, before falling during fiscal consolidation. - The Haddington Road Agreement aimed for savings of €1 billion (0.5 percent of GDP) in the wage and pensions bill in 2013–2015. - Pay cuts ranged from 5.5 percent for low and medium earners up to 10 percent for the highest paid civil servants. - Productivity measures included increased working hours and changes in overtime and allowance rates. - In 2015 the Haddington Road Agreement was extended by the Public Service Stability Agreement 2013–18 (“The Lansdowne Road Agreement”). - The Lansdowne Road Agreement is projected to add about €300 million (0.15 percent of GDP) to spending in 2016, mostly related to reversals of previous net pay reductions and modest pay increases for lower levels. - Outcomes and indicators: - By 2015 public sector wage levels were 9.7 percent of GDP (compared with 9.8 percent in 2005). - Wage bill as a percentage of overall public expenditure remained high at 27.2 percent (advanced-country average 24.5 percent). - Government employment rose from 8.3 percent in 2000 to 11.6 percent by 2009, then fell after 2009 and remains below the advanced-country average. - GDP growth is estimated at near 8 percent in 2015. - Reform challenges and lessons: - Ensure future wage increases reflect productivity improvements and greater flexibility. - Continue developing a performance orientation focused on tangible results. - Future comprehensive benchmarking exercises should account for nonwage compensation (e.g., pensions, job security) and all factors affecting compensation levels. ### Jamaica — structure of the wage bill, trends, and policy goals - Wage bill profile: - The budgetary government wage bill has fluctuated around 10 percent of GDP for the past 15 years. - A marked decline in the wage bill share in GDP since 2012 largely reflects efforts to contain wages and employment. - Medium-term objective: maintain the wage bill at 9 percent of GDP. - Composition and contract types: - About one-third of the wage bill is devoted to non-base pay allowances and bonuses. - Contractual and temporary workers comprised around 20 percent of the wage bill in 2015; of these about 30 percent have contracts of less than one year. - Distribution in Table 3 (Government Employment by Contract Type): - Permanent 73.5 (Number of workers in percent of Total) — 81.3 (Wage bill in percent of Total) - Temporary 20.3 — 12.2 - Contract 5.8 — 6.4 - Part Time 0.4 — 0.1 - Total 100.0 — 100.0 - Trends and sectoral developments: - Jamaica’s wage bill accounted for 52 percent of non-interest spending—highest share in the region. - The public-private pay premium increased from 10 percent in October 2011 to 23 percent in October 2014; for government workers with secondary education the premium was 44 percent in 2014. - Education wage bill decreased from 4.2 percent of GDP in 2011/12 to 3.6 percent of GDP in 2014/15; as percent of total government wage bill fell from 39 percent to 38 percent. - Health sector wage bill rose since 2012/13 due to reclassification of base salaries for doctors and nurses; allowances for doctors and nurses range from 26 percent to 60 percent of total compensation. - Overtime pay for secondary care doctors is about 25 percent more costly than normal hours. - Recent agreements and targets: - Wage freeze in 2010/11–2011/12; a 2012/13–2014/15 agreement recognized a wage bill target of 9 percent of GDP and agreed to a wage freeze with exceptions (promotions, 2.5 percent “increments”, pre-March 2012 reclassifications). - A two-year wage agreement for 2015/16–2016/17 envisaged wage increases of 4 percent in 2015/2016 and 3 percent in 2016/2017. - The wage bill is projected at 10.1 percent of GDP in FY2015/16. - Reform challenges and lessons: - Require review and approval for filling vacated posts via the Post Operations Committee (Ministry of Finance and Planning, Office of Services Commission, public sector unions). - Hiring restrictions reduced the relative number of younger fulltime permanent workers: workers aged 20–29 are about 40 percent of those aged 30–39. - Avoid targeting workers under the age of 30 when reducing employment to prevent long-term structural problems. - Medium-term goal: reach a wage bill of 9 percent of GDP by 2018/19 through shared services, IT modernization, prioritizing functions, and modernizing selected ministries. ### Kenya — wage bill drivers and decentralization challenges - Current situation and drivers: - General government wages about 7.4 percent of GDP in FY 2013/14, up from 5.7 percent in FY 2009/10. - Increase mainly owing to the rollout of decentralization in FY 2013/14, with subnational governments increasing their wage spending by 1.5 percent of GDP compared to 2011/12. - On average, public wages exceed private comparators by about 20 percent. - Allowances account for well over 50 percent of gross salaries across all job groups in the public sector; higher and middle cadres receive more allowances. - Institutional weaknesses: - Lack of a transparent, unified, and harmonized framework for determining pay; reliance on ad hoc taskforces, committees, and commissions. - Performance appraisal is not used for base pay determination; it is applied to bonus sharing and other non-permanent benefits. - Risks and concerns: - Rising public wage bill creates risks to fiscal sustainability. - Decentralization is complicating wage bill control through ambitious hiring at subnational level and transitional payroll complications between subnational and central government. - Reform agenda in progress: - Authorities are designing a comprehensive set of reforms to contain the wage bill and ensure sustainability, including harmonizing remuneration frameworks and addressing allowance-driven disparities. *International Monetary Fund — Case Studies on Managing Government Compensation and Employment* ### 0.8 percent of GDP in 2014/15. Second, former local authority staff and members of county ### _040816ab - 0.8 percent of GDP in 2014/15. Second, former local authority staff and members of county ### Kenya: wage bill, employment, and recent developments - General government wage bill potentially about 10 percent of GDP (Official Government Financial Statistics (GFS) for FY 2013/14). - Recent developments: - Former local authority staff and members of county assemblies have recently awarded themselves substantial wage increases. - Run-up to elections in 1997: teachers awarded a 200 percent wage increase (spread over five years); civil servants enjoyed an increase of 18 percent that year. - Between 2005 and 2009, relative reduction in the wage bill took place (mainly due to high GDP growth). - In 2012 the government approved pay hikes to civil servants, with wage increases varying between 18 percent and 22 percent. - Measures underway: - Authorities committed to a comprehensive public employment and compensation reform, engaging in national debate and social dialogue. - Hiring freeze implemented as a short-term measure while awaiting enactment of a wage policy plan by the Salaries and Remuneration Commission. - Government in process of approving (expected in August 2016) a plan to continue implementation of the Capacity Assessment and Rationalization of the Public Service program to achieve significant rationalization at national and subnational levels. - Policy recommendations: - Devise a wage policy plan covering subnational governments and focusing on the general government wage bill. - Measures could include eliminating overlap and duplication across government levels, tightening eligibility for allowances, and adopting a remuneration policy based on a wage grid ensuring comparability with the private sector (Clements and others, 2010). - Implement measures gradually within the context of social dialogue to avoid reversals and reduce crowding out of private sector employment. ### Kosovo: rapid wage and employment growth, fiscal rule to contain wage bill - Since independence in 2008: - Government wages have grown almost three times faster than nominal GDP. - Expansion in government employment added pressure on the public wage bill. - Labor market context: - Central and local governments provide almost a quarter of all jobs. - Employment to working-age population is 28 percent; labor force participation about 40 percent; unemployment about 30 percent of the active. - After public sector wage increases in 2011, average private wage growth was more than 10 percent. - Average public sector wage exceeds average private wage by more than 30 percent. - Historical wage actions: - Before 2011 elections: base wages raised by 50 percent, increasing total wage bill by around 27 percent. - In 2014, pre-election across-the-board salary increases of 25 percent implemented without approval of parliament. - Wage bill share in GDP increased by 2 percentage points in 2010–2015; wage bill nearly 9½ percent of GDP (remains high compared to low-income economies and slightly above emerging Europe average of 9 percent of GDP). - Employment increases: - January 2010–November 2014: increase in central and local government employment by about 5,100 staff; almost 4,500 (85 percent) hired before the 2010 and 2014 elections. - Fiscal rule: - Introduced to limit increase in the wage bill to no more than nominal GDP growth starting in 2018. - Rule specifics: - Allows public wage bill to grow by up to nominal GDP growth. - Allows wage bill to increase by up to 0.5 percent when nominal GDP grows by less than 0.5 percent. - Requires ratio of wage bill to nominal GDP to revert back to pre-increase level within three years, starting in the fiscal year in which nominal GDP growth exceeds 0.5 percent. - Uses the annual growth rate of nominal GDP of the latest calendar year for which data are available at time of budget preparation (past nominal GDP chosen over forecasts or other indicators). - With nominal GDP growth expected in the 5–6 percent range in the medium term, the rule implies significant deceleration in wage growth relative to historical trends. - Wage bill-to-GDP ratio expected to fall to around 9 percent in 2017 following two years of consecutive nominal wage freezes. ### Malaysia: rising wage bill, centralized HR system, and reform priorities - Trends and metrics: - Wage bill increased by 0.9 percentage points, reaching 6.2 percent of GDP in 2014 (5.8 percent of GDP in 2011). - Wages account for an estimated 20.4 percent of government expenditure in 2014. - Institutional features: - Public Service Department (PSD) responsible for HR management, employment planning, and setting base wage increases; system highly centralized across 28 schemes of service. - Allowances make up between 11 and 20 percent of the total wage bill. - No performance-related pay; wage progression automatic within wage scales. - Ministries have considerable flexibility over approved budget but limited delegation on HR; negotiations on wage increases occur throughout the year without direct links to the budget process. - Issues: - Operational expenditures (mostly personnel costs) increased as investment spending fell. - Wage bill overruns occurred; salaries ranged from 10 to 26 percent relative to the original budget during 2006–12, averaging 15½ percent in that period. - Human resource management information and payroll systems do not provide timely information or prevent/control overspending. - Reform objectives: - Improve forecasting, budgeting, planning, and expenditure control of the wage bill within spending ministries. - Rebalance centralized HR management to provide ministries, within central guidelines, more flexibility over staff management. - PSD plans to introduce a new forecasting model and to provide line ministries with better flexibility in managing staff. - Efforts to link pay and performance and introduce competency assessment tools have been attempted; minimum wage introduced two years prior to the report; current measures focus on not filling vacant posts. ### Mali: wage bill constraints, decentralization and resistance to reform - Scope and figures: - Central government employees: compensation amounted to one-fifth of central government expenses and one-third of budgetary revenue in 2015 (grants not included). - Central government employs about 40,000 staff; sub-national governments employ a similar number. - Contractual employees accounted for one-third of central government payroll in the past five years; ratio increased from 29 percent in 2011 to 41 percent in 2015. - Institutional arrangements: - Responsibilities split between Ministry of Finance (budget forecasting, payroll) and Civil Service Department (employment framework, recruitment, wage setting). - Budget ceilings set via three-year forecasts; credibility affected by ad hoc wage negotiations. - Wages paid on time but payroll and personnel lists reconciliation irregular; 2015 census identified ghost workers. - Trends: - Government wage bill increased by nearly 1½ percentage points of GDP in 2000–2015. - Increases driven by recruitment in priority areas and increases in base pay and allowances after presidential elections. - To sustain wage bill when revenue dropped, government reallocated funds from capital spending to the wage bill. - Reform challenges: - Need to move to a modern, smaller, more decentralized workforce; step up administrative capacity, improve SNG capacity for decentralization, finish decentralization of HR management to line ministries. - Attempts at reform (e.g., 2015 reform of financial incentives for tax and customs staff) failed; outcomes of 2014 civil service census not disclosed as of 2016. - Recommendations include setting a reliable medium-term job and competencies plan starting from stock taking of employees, modernizing the civil service legal framework, and stepping up revenue collection (WAEMU target of 20 percent of GDP) to sustain wage bill without crowding out growth-friendly spending. ### Moldova: high wage bill, ad hoc increases around elections, education sector reforms - Metrics: - Wage bill relatively high at 9 percent of GDP in 2015. - Total remuneration structure: basic pay about 40 percent of total pay on average in 2011; bonuses and supplements comprised the variable component. - Bonuses in 2011: 25 and 50 percent of basic salaries for most positions among civil servants and service personnel/technical staff, respectively; supplements ranged from 30 to 50 percent of basic salaries for some items. - Trends: - Total wage bill increased significantly 2004–2009 and 2014–2015. - Wage bill jumped in 2006 (implementation of Law No. 355) and in 2009 (pre-parliamentary elections). - Wage bill declined 2009–2014, then rose to nearly 9 percent of GDP in 2015 reflecting election-related wage adjustments. - Government employment has been on a declining trend since 2007, largely reflecting declines in education sector employment. - Reforms and outcomes: - Reforms initiated end-2009 through 2012: postponing planned wage increases, freezing budgetary sector employment, cutting permanently vacant staff positions, merit-based promotions and basic salary increases formalized in early 2012 (Law No. 48 in March 2012). - Education sector structural reforms (class and school network optimization, per-student financing) were implemented with delay and amid resistance; per-student financing piloted 2011–2012 and implemented nationwide in 2013. - Reforms had costs: total wage bill in 2012 was 0.3 percentage points of GDP higher than 2011 due to salary adjustments for junior specialists and support for poorly remunerated groups. - Student-teacher ratio and average school size (selected years): 1991: 13.8 student-teacher ratio, average school size 437; 2013: 11 student-teacher ratio, average school size 256. - Lessons: - Non-structural measures contain wage bill only short-term; political cycles weaken reforms. - Structural reforms require complementary infrastructure and measures to ensure access to public services and to manage distributional concerns; strong political will needed. ### Netherlands: long-term wage containment experience and structural measures - Historical trajectory: - Wage bill declined from 13½ to 9 percent of GDP in 1980–2000 and hovered around 9 percent of GDP thereafter. - Government employment remained slightly under 10 percent of the working-age population. - Composition shift: health care employment increased by about 45 percent in the past decade; general government employment reduced by 7 percent in 2006–2011 (excluding priority areas, reduction 10 percent). - Institutional features: - Public wage setting based on “sectorenmodel”: wage negotiations held separately in each sector with ministers directly involved; health care regulated through the OVA-convenant (government does not participate). - Government wage envelope determined by a reference system tied to private sector wage and labor cost evolution. - Policy actions and outcomes: - Wage freezes and cuts used historically; 2004/05 wage freeze after a 0.6 percentage point increase in wage bill in 2000–2003. - Attrition cuts of 1 and 2 percent in 2006 and 2007; hiring of short-term experts decreased. - Post-2009 crisis: wage freeze in 2010 and further freezes for 2012–2014, plus attrition-based employment reductions; wage bill declined to under 9 percent of GDP by 2015. - September 2015: agreement to increase public sector wages to a maximum of 5.05 percent starting in 2015 and 2016 to improve purchasing power. - Lessons: - Sustainable wage-bill development requires coordination with private sector wage development or structural measures (attrition, employment reorganization). - Wage freezes yield short-term containment; structural reforms needed for medium- and long-term containment. ### Philippines: stable national wage bill, targeted expansion, and performance-linked pay - Metrics and context: - National government wage bill remained around 5 percent of GDP in the past decade. - Employment about 5 percent of the working-age population. - National government collects nearly 80 percent of general government revenues and accounts for 85 percent of general government spending. - Recent policy and changes: - K-12 initiative launched in 2011 expanded compulsory education; supported by 128,000 new teachers during 2010–14 (equivalent to 4 percent of the government workforce in 2015). - Salary Standardization Law (SSL) sets salary scales; SSL-IV issued in February 2016 sets salary scales for 2016–19. - Performance-related pay (PRP) system introduced in 2012 with Performance-Based Bonus (PBB) replacing across-the-board bonuses. - PBB design: - Preconditions: departments/agencies must meet 90 percent of agreed performance targets and comply with governance guidelines. - Within departments, units (bureaus) force-ranked: “best” 10 percent, “better” 25 percent, “good” 65 percent. Individuals also force-ranked with same proportions. - PBB amounts (Philippine pesos) in 2012: - Best bureau (10 percent): 35,000 / 20,000 / 10,000 (best/better/good performer) - Better bureau (25 percent): 25,000 / 13,500 / 7,000 - Good bureau (65 percent): 15,000 / 10,000 / 5,000 - PBB amounts ranged from 5,000 pesos (US$120) to 35,000 pesos (US$830); highest PBB was 10–18 percent of total compensation for clerical and junior technical staff, less than 5 percent for senior management. - Outcomes and challenges: - Wage bill gradually decreased since 2011 as percent of GDP; PBB not fiscally costly. - Perceived benefits: improved target setting, monitoring, and performance appraisal framework. - Challenges: performance ratings viewed as subjective/unfair; forced distribution can hurt morale; some outcome indicators subject to gaming; harder-to-measure government functions face measurement challenges. - Lesson: PRP can improve service delivery at low fiscal cost if appraisal system is credible and measures are well-designed. ### Portugal: substantial wage bill reduction under fiscal consolidation, but reversals and legal limits - Scope and figures: - Wage bill was among the highest in EU before crisis; increased from 12½ to 14½ percent of GDP in 1995–2005. - By 2015, estimated wage bill at 11 percent of GDP (about 1 percentage point higher than advanced economy average); general government employment declined from 14 to 11 percent of the working-age population in 2010–2015 (from 750,000 to about 660,000). - Institutional and structural features: - Wage bill includes central government, local governments (including autonomous regions), and social security funds; many public entities (e.g., hospitals) part of general government. - Multiple contractual arrangements: 11 percent permanent contract, 75 percent open-ended contract, 11 percent individual contract. - Over 280 different supplements and more than 410,000 supplement payment events; supplements about 5 percent of wage bill. - Large automatic progression system, early attainment of high-level wages, high overtime (60 million hours paid in 2011). - Reform measures since 2010: - Attrition (entry-to-exit ratio 1:3), cuts in temporary contracts, special provisions for local administrations. - Progressive wage cuts: 2.5–12 percent in 2011; suspension of 13th and 14th monthly salaries in 2012; additional 3.5–10 percent reduction in 2014; promotions, performance bonuses, mobility-related salary changes frozen since 2011. - Structural changes: comprehensive employment and remuneration database (Information System on the Organization of the State) in 2011; mobility pool; separation programs with severance packages; standard workweek increased from 35 to 40 hours; Single Wage Scale adopted in 2014; Single Supplements Scale adopted. - Outcomes and constraints: - In 2010–2014, wage bill reduced by 2 percentage points and contributed to over two-thirds of total expenditure consolidation (~3 percentage points of GDP). - Large reduction in public employment driven by attrition; sectors contributing most: education (35 percent of reduction), defense (9 percent). - Legal and political limits: Constitutional Court rulings rejected suspension of holiday and Christmas allowances and cancelled second wave of wage cuts; reversals by the 2015-elected government to fully reverse remaining wage cuts (total cost 0.3 percent of GDP). - Expected reversals and halting of structural reforms limit short- and medium-term savings; return to 35-hour week in 2016 expected to increase overtime. - Lesson: - Structural reforms and careful multiyear planning required to sustain wage bill containment; need to improve skills in public administration, better target recruitment priorities, and differentiate wages to attract needed talent. ### Romania: rapid pre-crisis wage expansion, emergency consolidation measures, and legal limits - Trends and figures: - Public wage bill increased from 8 to 11 percent of GDP in 2009–2011. - Fiscal deficit deteriorated from 0.7 to 7.1 percent of GDP during the same period. - Economy grew about 7 percent in 2005–08 and shrank by 7 percent in 2009. - Public sector average wage grew by 63 percent between 2005 and 2008. - General government employment rose by about 15 percent, with local government accounting for about 65 percent of the total increase. - Measures taken 2009–2012: - Furloughs (up to 10 days leave without pay in Nov–Dec 2009). - Nominal pay cuts (25 percent reduction in July 2010). - Hiring restrictions: one hire per seven separations to reduce employment by attrition (2010). - Rationalization of non-base pay: eliminated allowances for work complexity/managerial responsibility/meeting attendance in 2009; removed special salaries for doctors, policemen, and prison administration in 2010; capped non-wage pay to 30 percent of base pay in 2011; discontinued overtime and weekend/holiday payments in 2012; phased out social coupons and 13th month salary and holiday bonuses. - SOE controls: loss-making SOEs not allowed to raise wages; others limited to inflation and productivity. - Distributional measures: - Protected lowest-wage employees and poorest pensioners; minimum public wage thresholds unchanged; earmarked funds for Guaranteed Minimum Income scheme. - Constraints and outcomes: - Some drastic measures were ruled unconstitutional (Constitutional Court ordered reversal of 25-percent wage cut and compensation for teachers for a 50-percent increase). - Measures did not fully address pay/employment distortions: public sector average wage fell below private sector by about 15 percent, creating retention/hiring challenges for skilled workers. - Seven-to-one hiring rule lacked reallocation across sectors; attrition failed to address overstaffing/understaffing. - Outsourcing of services partly offset reductions in government staffing. *Italic: International Monetary Fund — Case Studies on Managing Government Compensation and Employment (content unit as provided).* ### 0.6 percent of GDP between 2009 and 2013. ### _040816ab - 0.6 percent of GDP between 2009 and 2013. ### Romania — Attempts to introduce a unified pay framework and fiscal implications - Legislation approved in 2009 aims to: - unify the pay scale across the government; - reform and cap bonuses; and - reduce the wage bill to 7 percent of GDP by 2015. - The law has not been implemented because its application implies a sizeable increase in compensation expenditure—up to 1–2 percentage points of GDP. - Key factors making the new framework more costly than anticipated: - It relies on unfeasible cuts in public employment to reach the wage bill targets. - Reversal of past measures increases the point at which workers would be placed in the proposed grid, raising costs. - The law ties the entire pay scale to a single reference wage (envisaged to increase by 56 percent between 2010 and 2015). - Increases in the minimum wage have raised the lower point of the scale; maintaining the same compression (ratio of the highest to the lowest point of the scale) would require large increases to all points in the scale. - The bonus reforms are more timid than expected. ### Romania — Policy interaction and consistency - The increase in the minimum wage exacerbated the distortions the unified wage law intended to address. - Due to the wage increase, implementation of the revised unified wage law is becoming more challenging because the corresponding decompression would lead to an upward shift of the entire wage system, requiring a larger fiscal space. - A revision of the unified wage law is under preparation based on principles including: - unitary regulation across categories and sectors; - rule of law for salary rights; - fairness and consistency (equal opportunities and equal pay for work of equal value); - promotion of professional performance; - enabling career development; and - financial sustainability in line with fiscal space. ### Romania — Assessment of public sector compensation and employment system - Achievements and emerging weaknesses: - Romania succeeded in reducing the wage bill below peer countries. - Pressures are re-appearing as consolidation measures were reversed. - Public sector employment level seems to have declined below that in peer countries, but the employment structure does not seem to match public service needs. - The wage structure does not provide sufficient incentives for skilled-labor to join and remain in the public sector. - The inconsistency between the increase in the minimum wage and the unified wage law has exacerbated distortions. ### South Africa — Wage bill trends and institutional background - Trend overview: - After a gradual decline in 2000–06, South Africa’s wage bill started to increase sharply from 2007 after the introduction of a new compensation framework. - The wage bill rose from 8.2 to 11 percent of GDP in 2006–2010. - At 11½ percent of GDP in 2015, the wage bill stands out in cross-country comparisons and is described as unsustainable. - Institutional and labor-relations features: - Analysis focuses on wage expenditure covered by the general government budget (national government and provinces). - With education and health services decentralized, the provinces employ about 70 percent of the 1.3 million people in the public service workforce as of March 2015; the remaining 30 percent are employed by the national government. - Wage bargaining is centralized under the Public Service Coordinating Bargaining Council (PSCBC), an independent institution comprising labor unions and the government. - Sector bargaining councils exist but have limited capacity and decision-making power. - The bargaining process typically starts with labor unions submitting proposals; the Department of Public Service and Administration prepares the government position paper with costing in consultation with national departments including the Ministry of Finance. - Negotiations usually expected to take 3 weeks can in practice last up to 6 months. - Agreements set a given increase in the base salary for a year or multiyear term, applicable to all civil servants except those in senior management. - Historical reforms and outcomes: - A 3-year agreement with labor unions in 1996 began deep civil service reforms to streamline and modernize the public sector, rationalize the wage bill, and improve service delivery. - To rightsize the public sector, a voluntary severance package, attrition, and redeployment helped achieve close to a 10 percent reduction in public employment by 1999. - Pension benefits were restructured; a number of allowances were consolidated into base salary. - Salary scales were simplified and wage drift from pay progression was reduced by 0.5 to 1.5 percent. - Consolidation of job categories into larger groups simplified the grading system. ### South Africa — Occupation Specific Dispensation (OSD) and fiscal impact - The OSD, introduced to harmonize salary scales, attract and retain specific skills, and promote performance-based remuneration, contributed to the sharp wage-bill increase: - OSD implementation coincided with across-the-board pay increases, allowing public workers to enjoy a higher OSD pay scale plus generous pay rises. - OSD led to proliferation of salary scales coexisting with general public service scales. - Multiple allowances persisted despite aims to streamline them under OSD. - Implementation challenges resulted in some employees being placed on more generous scales without the state recovering overpayments. - The OSD’s fiscal cost was sizeable and contributed to reversing earlier fiscal gains, exacerbated by its timing during the global financial crisis. - Consequences: - The wage bill surged and continued increasing since 2010, albeit at a slower pace. - With employment below the emerging-country average, relatively high pay appears to be the source of the high wage bill. - The high wage bill crowds out other critical expenditure and jeopardizes fiscal sustainability. - Containment efforts initially focused on employment; little has been done to contain pay increases, the root of the high wage bill. - Political will and social dialogue are highlighted as key for reform success. *Source: _040816ab - 0.6 percent of GDP between 2009 and 2013._* ### introduction of the OSD. Bosch (2006) estimates that the average compensation in the public ### _040816ab - introduction of the OSD. Bosch (2006) estimates that the average compensation in the public ### South Africa — public-private wage gap and OSD rollout - Finding: Bosch (2006) estimates that the average compensation in the public sector was 35 percent higher than in the private sector using 2005 data. - Finding: Average government wages have steadily increased in real terms, notably in the health sector, as civil servants moved onto the OSD pay scale with a higher salary. - Finding: Generous across-the-board wage increases resulted from wage negotiations between unions and the government; automatic progression, promotions, and allowances also added to the rising wage bill. - Finding: Allowances are numerous and complex, some duplicative and often not well targeted; example—housing allowance intended to promote home ownership became a general allowance benefiting all employees, including those in heavily subsidized official housing. - Heterogeneity: Anecdotal evidence suggests the wage premium is substantially higher at low-qualified positions, which might threaten the ability to attract or retain highly skilled workers. ### South Africa — wage bill projections, collective bargaining, and recent agreements - Finding: Medium-term wage bill projections were consistently outpaced by wage bill outturns; wage settlements are generally above the planned fiscal envelope. - Finding: Lack of coordination between the budget process and collective bargaining—collective bargaining often completed after the budget is approved—complicates budget management. - Example: The 2015 wage agreement resulted in an additional cost of R63.9 billion (1.5 percent of 2015/16 GDP) over the fiscal envelope of the Medium Term Expenditure Framework (MTEF). - Government response: Authorities announced the wage cost overrun would be accommodated through savings, reallocation and draw downs on contingency reserves. - Fragmentation: Elements of the remuneration package are not discussed as a whole; cost-of-living adjustment is negotiated separately from allowances and other benefits, creating uncertainty on the ultimate fiscal cost of collective bargaining. - Recent agreement terms and projected impact: - 2015 agreement covers 3 years and entails a 7 percent increase in salary in 2015/16 (against an average inflation rate of 4.5 percent in 2015). - For 2016/17 and 2017/18 the agreement entails increases by inflation rate plus 1 percentage point. - Benefits such as housing allowance and employer’s contribution to medical insurance will be adjusted upward as part of the agreement. - Cost drivers: progressions, promotions, and adjustments in allowances negotiated at sector level; rollout of the OSD not completed yet, heightening risks of wage bill slippages. - Projection: Public workers’ salaries including benefits expected to grow by 10.1 percent in 2015/16, followed by an increase that will be at least two percentage points higher than consumer inflation in the next two years. - Note: The 2015/16 fiscal year runs from April 2015 to March 2016. - Fiscal context: Public debt increased by over 10 percentage points in 2011–2015; tighter fiscal stance desirable in short-term while implementing structural reforms. ### South Africa — reform challenges and lessons - Measures taken: - Nominal expenditure ceilings introduced since the 2012 budget. - In 2015/16 budget speech: freeze in public employment for 2015/16 and 2016/17; review of funded vacancies to withdraw funding for those not filled for a long period; new recruitment to be funded through existing allocations and space created by natural attrition. - Remuneration commission created in 2013 to examine pay and working conditions and make recommendations to ensure sustainability of the wage bill and improve service delivery. - Creation of the Presidential Remuneration Review Commission (PRRC) to look at public service remuneration and provide recommendations. - Assessment of employment freeze: - Untargeted employment freeze yields short-term savings and is easy to implement, but is not efficient: does not address pockets of overstaffing, generates limited efficiency gain, and can affect service delivery in critical sectors (education, health). - Pay policy reform requirements: - Strong payroll and personnel management system is prerequisite—clean database to eliminate ghost workers and regularly updated employee information. - Develop alternative pay policy scenarios and careful modeling to determine affordable solutions. - Entrench pay reform in the MTEF and integrate expected impact on wages into regular wage bargaining. - Comprehensive implementation should simplify remuneration structure (e.g., streamline allowances) and link pay to performance. - Political economy and social dialogue: - Need to build high-level commitment to medium-term wage bill ceilings and make them binding for the government. - Strengthen continuous engagement with labor unions to build consensus that wage bill reforms are a less painful route to fiscal adjustment. - Recommend building a strong evidence base (public/private wage differentials, trade-offs between employment levels and wages, potential difficult measures if reforms not undertaken). - Government negotiation strategy might require: longer-term employment reforms to bargain for, a holistic approach to the remuneration package during negotiations, and reforming negotiating bodies to enhance the Ministry of Finance’s role. - Consideration could be given to an independent pay review body as intermediary between government and unions. - Social dialogue takes time and may be constrained by available fiscal space. ### Tunisia — wage bill level, composition, and recent agreements - Finding: Wage bill reached about 13½ percent of GDP in 2015. - Institutional scope: Case study focuses on central government wage bill (central administrative units, executive agencies, other agencies fully or partially funded by budget); excludes local government wage spending and budget contributions to SOE wages. - Wage bargaining: Union Générale Tunisienne du Travail undertakes wage negotiations typically over a three-year period; sector-specific negotiations also occur. - Recruitment and staffing: - Competitive recruitment (concours) mandated by the Statute of the Public Service (Assemblée Nationale, 1998), but exceptional provisions after 2011 allowed direct recruitments bypassing competitive processes. - New recruits hired on permanent basis after internship: one year for new graduates and contractual workers, two years for all other civil servants. - Staffing structure decisions do not follow systematic needs assessments and are vulnerable to ad hoc requests for staff increases. - Mobility and redeployment: A law authorizing redeployment passed in 2014, but implementing regulations met with significant resistance from unions. - Compensation structure: - Complex combination of base salary plus numerous allowances varying by professional group, category, unit, and rank; specific allowances set by decree and particular statutes; common allowances include mileage allowance, family allowance, and performance bonus. - Promotions largely awarded based on seniority and can be largely automatic; annual professional rating lacks transparency and objectivity. - Trends and quantitative findings: - Wage bill increased by 2½ percentage points of GDP in 2010–2015, crowding out priority infrastructure spending. - On average, 68 percent of growth in the wage bill was due to rising pay in 2011–2014. - Number of civil service employees increased by about 15 percent in 2010–2015 to about 631,000 workers. - In 2014, allowances amounted to about 60 percent of total compensation. - Ratio of average allowances to average basic salary increased from around 120 percent in 2011 to around 143 percent in 2014. - Public sector wage premium: After accounting for socioeconomic characteristics, the premium is 18.2 percent for public sector workers. - Policy concern: Higher public compensation likely introduces wage distortions and crowds out private sector employment, with negative implications for competitiveness. - Recent agreement and policy response: - Agreement reached April 2015 stipulating increase in base salary and specific allowances for all public sector employees. - For central government employees, base salary to increase by 55 Tunisian dinars a month, on average, in 2016 and 2017. - Increase in allowances averages about 43 dinar a month, taking effect in July 2016, with automatic renewals in April 2017 and in April 2018. - Authorities’ medium-term consolidation plan aims to reduce the wage bill as a share of GDP to 12 percent by 2020. - Measures: temporary hiring freeze starting in 2016, except for health, defense, and security ministries; no authorization of new recruitment including replacing retiring workers. - Administrative reform: Authorities, with donor assistance, developing civil service reform strategy involving redeployment, organizational audit, review of compensation structure, and career mobility. ### United Kingdom — institutional approach and trends (excerpt) - Institutional approach: - Wage setting mixes centralized policy setting/guidance and decentralized implementation. - Individual departments manage employment and salary decisions within an overall budget constraint and pay award policies set by central government via periodic “spending round” processes. - Central government issues annual civil service pay guidance for the civil service; departments liaise with unions and staff to determine individual pay increases, bonuses, allowances, and employment decisions within overall budget envelope and pay award policy. - For central government workforces, pay awards determined through annual pay round process with recommendations from independent Pay Review Bodies. - For local government workforces, pay policy is delegated to local government level and individual councils make pay/workforce decisions within available funds. - Variations across workforces: Pension contributions and payments, allowances, sickness benefits, redundancy payments, progression pay, and annual leave provisions differ across workforces and levels of government; recent reforms have harmonized valuation of pension payments and the government is consulting on options to reform redundancy payments. - Trend (partial): The public sector wage bill expanded steadily during the 2000s; the U.K. wage bill increased from 9.3 percent of GDP in 2000 to approximately (text truncated). *Source: _040816ab - introduction of the OSD. Bosch (2006) estimates that the average compensation in the public* ### 10.6 percent of GDP at the end of 2008, despite a small reduction in the percentage of government ### _040816ab - 10.6 percent of GDP at the end of 2008, despite a small reduction in the percentage of government ### United Kingdom — Context and Fiscal Position - Wage bill reached 10.6 percent of GDP at the end of 2008. - With the additional stress from the financial crisis, the wage bill increased to 11 percent of GDP. - In 2010 the U.K.’s debt position stood at more than 70 percent of GDP, and the fiscal deficit at approximately 11 percent of GDP. - The wage bill employed over 22 percent of the total U.K. working population and comprised about a quarter of total public spending at the time of the financial crisis. ### United Kingdom — Immediate and Short-Term Measures - Pay freeze for two years (with protections for the low paid) followed by a 1 percent annual average pay award policy for central government workers. - The 1 percent pay award was an average that applied to each department but not to each individual. - Temporary recruitment freeze in the civil service (the U.K. civil service is now at its smallest since the second World War). - Reduction in departmental budgets leading to workforce reductions across large parts of the public sector; Health and education budgets were protected (protections later extended to armed forces). ### United Kingdom — Longer-Term Structural Reforms - Pension reforms: - Move from final salary to career average pension schemes. - Move from RPI to CPI indexation. - Automatic link between the pension age for public sector schemes and the state pension age (except for firefighters, police, and armed forces). - Rebalancing of contributions between scheme members and the taxpayer. - These pension reforms increased employee contribution rates by 3.2 percent on average and aimed at saving £2.8bn by 2014–15. - Introduction in April 2015 of a cap on the overall cost of new pension schemes. - Removal of automatic time served progression pay across the civil service. - Civil service workforce reforms: central controls on allowances, bonuses, interim staff; modernization of employee terms and conditions for new staff and promotions. - Stricter monitoring and control of approval for salaries above that of the Prime Minister, and off-pay roll staff. ### United Kingdom — Outcomes, Savings, and Ongoing Measures - Post-crisis reforms resulted in a decrease in the wage bill from 2009 onwards; the U.K. wage bill is now roughly at the mean for advanced economies. - Public-private pay differential returned to pre-recession level; public sector pay remains, on average, comparable to private sector pay when pensions considered. - Short-term measures (pay freeze and 1 percent pay award) helped save approximately 8 billion pounds in the last parliament and are expected to save another 5 billion pounds in the next five years. - Pension reforms projected to have saved approximately 430 billion pounds by 2060. - The overall pace and size of cuts set for the next five years is one-third smaller on average than the cuts in 2010–2015 (Office for Budget Responsibility, 2015). - Office for Budget Responsibility estimate: more than half a million public sector jobs were lost in the last parliament; the next five years will see a reduction of less than a hundred thousand jobs. - Government continuing to consult on additional reforms: redundancy pay, contract reforms with doctors and nurses, flexibility for head teachers on pay within set maxima and minima, specific police reforms, and a new employment model for the armed forces. ### United Kingdom — Policy Challenges and Lessons - Key implementation challenges: - Negotiating changes to legal contracts and pension provisions. - Balancing fiscal consolidation with morale, recruitment, and retention via pay award policy. - Addressing automatic time served progression pay that varies across departments. - Incentivizing long-term strategic planning and workforce management within departments. - Lessons learned: - Having clear policy goals (the 2010 coalition government's roadmap) helped drive reforms. - Pay Review bodies provided independent advice and served as an intermediary in bargaining with unions. - Short-term measures have been effective so far but could be difficult to sustain as private sector wages pick up. - Further long-term workforce planning and structural reforms are required to improve labor productivity and avoid short-term decisions that affect the wage bill. --- ### Zimbabwe — Overview and Fiscal Implications - Since 2009, wage bill has grown rapidly to restore public service wages after hyperinflation, expand service delivery, and increase the state's role. - Wage bill at about 55 percent of total spending (2015). - If total employment costs (including pension costs and transfers for wage purposes) are considered, total public service wage bill would rise to over 65 percent of expenditure. - The wage bill is significantly larger than in other low-income developing countries. ### Zimbabwe — Institutional Background and Remuneration Features - Wage bill covers central government including police and armed forces; transfers to local government and subvented agencies for wage purposes have grown. - Management of compensation and employment by service commissions/boards with concurrence of the Minister of Finance. - Career-based employment system; pay grouped into six grades from A (lowest—unskilled) to F (highest—top professionals and senior managers). - Pay progression linked to positive performance assessment; there is no guaranteed pay progression though in practice almost all staff receive positive assessments. - The 13th check not subject to a performance assessment and includes allowances in addition to base pay; remains universal though not mandated by law. - Allowances are extensive (over 40 percent of the wage bill) and guaranteed; housing and transport allowances are universal; allowances often function as base pay. - Evidence of a public sector wage premium over the local private sector. - Government provides almost a quarter of all jobs; employment to working-age population is 28 percent. - Labor market participation: only 40 percent are economically active; unemployment about 30 percent of the active. ### Zimbabwe — Trends, Measures, and Fiscal Management - Wage bill growth driven by higher wages (restoring real wages eroded by hyperinflation) and employment growth (expansion in service delivery and state role). - Between 2010 and 2013, employment cost expansion was underpinned by expectations of continued growth; unanticipated slowdown exacerbated the problem. - Despite a hiring freeze announced in 2011, employee numbers continued to grow as service delivery priorities overrode the freeze. - Consolidation strategy focuses on direct interventions based on employment and payroll audits, while maintaining pay and hiring freezes. - The Civil Service Human Resource and Payroll Systems Audit identified potential wage bill savings of US$170 million a year. - FY2016 budgets prepared on the basis that hiring and salary freezes remain in place; employment and salary freeze expected to remain in place for the next three years. - A review of allowances is planned to identify areas of potential savings and efficiency gains. ### Zimbabwe — Reform Challenges and Recommended Medium-Term Actions - Short-term challenge: contain the wage bill while ensuring service delivery; requires establishing a clear target consistent with service delivery needs and managing recruitment and remuneration accordingly. - Recommended actions: - Implement payroll audits in civil service, health, and uniformed services and review composition of compensation to identify savings and efficiency gains. - Develop a strategy for equitable retrenchment of workers in overstaffed functions, including redeployment to understaffed priority areas. - Enhance coordination between line ministries, service commissions/boards, and the Ministry of Finance to avoid budgeting in silos and enable rebalancing between wage bill, running costs, and capital. - Provide line ministries and departments more flexibility to manage resources within a clear fiscal and HR framework, with regular reporting and oversight. - Anchor a medium-term wage bill target in fiscal objectives and manage remuneration and employment levels consistent with that target. - Conduct functional reviews in critical ministries, review pay policies (including pensions), give early guidance on budget ceilings to MDAs, further develop Program Based Budgeting, and strengthen MTEF processes to shift budget culture from needs to availabilities. *Source: IMF staff calculations.* ### References ### _040816ab - References ### Multilateral institutions, IMF, World Bank, OECD, and related reports - Clements, Benedict, Sanjeev Gupta, Shamsuddin Tareq, and Izabela Karpowicz, 2010, “Evaluating Government Employment and Compensation,” IMF Technical Notes and Manuals 10/15 (Washington: International Monetary Fund). - International Monetary Fund, 2013, “Rethinking the State–Selected Expenditure Reform Options,” Country Report No. 13/6 (Washington). - International Monetary Fund, 2014, “South Africa: 2014 Article IV Consultation Staff Report,” IMF Country Report No. 14/338 (Washington). - International Monetary Fund, 2016, “Ireland: Fourth Post-Program Monitoring Discussions,” Staff Country Report No. 16/18 (Washington). - International Monetary Fund, “From Crisis to Convergence: Charting a Course for Portugal,” Forthcoming IMF European Departmental Paper (Washington). - World Bank, 2014, Pay Flexibility and Government Performance: A Multicountry Study (Washington), http://documents.worldbank.org/curated/en/2014/06/19630016/pay-flexibility-government-performance-multicountry-study. - World Bank, 2015, “Measuring the Impact of School Optimization Reform in Moldova” (Washington), http://siteresources.worldbank.org/EXTSOCIALDEVELOPMENT/Resources/244362-1350667212030/Anna-Olefir-Education-Moldova.pdf. - Organisation for Economic Co-operation and Development (OECD), 2008, “Ireland: Towards and Integrated Public Service” (Paris). - Organisation for Economic Co-operation and Development (OECD), 2012, Public Sector Compensation in Times of Austerity (Paris: OECD Publishing), http://dx.doi.org/10.1787/9789264177758-en. - European Commission, 2014, “The Economic Adjustment Program for Portugal 2011–2014,” Occasional Papers 202. - Office for Budget Responsibility, 2015, “Economic and Fiscal Outlook—November 2015” (London), http://budgetresponsibility.org.uk/economic-fiscal-outlook-november-2015-3/. ### Country laws, government communications, and administrative sources - Assemblée Nationale, 1998, “Tunisie: Décret n° 98-834 du 13 avril 1998, fixant le statut particulier au corps administratif commun des administrations publiques,” Journal official de la République Tunisienne, No. 32, pp. 816–22. - Côte d’Ivoire, Republic of, 2014, “Communication du Conseil des Ministres sur la stratégie de maitrise de la masse salariale.“ - Moldova, Republic of, 2005, “Law No. 355-XVI of 23 December 2005 on the Wage System in the Public Sector,” Accessed August 24, 2015. - Moldova, Republic of, 2012, “Law No. 48 of 22 March 2012 on the System of the Pay of Civil Servants,” Accessed August 24, 2015. - Department of Budget and Management, 2016, “Staffing Summary 2016,” Accessed March 28, 2016, http://www.dbm.gov.ph/?page_id=13365. - Department of Education, 2016, “K to 12 General Information,” Accessed March 28, 2016, http://www.deped.gov.ph/k-to-12/faq. - Department of Public Expenditure and Reform, 2015, Statement by the Minister for Public Expenditure and Reform on the Outcome of Discussions Between the Government and the Public Service Unions, http://www.per.gov.ie/en/statement-by-the-minister-for-public-expenditure-and-reform-brendan-howlin-t-d-on-the-outcome-of-discussions-between-the-government-and-the-public-service-unions/. - Fair Wages and Salaries Commission, 2009, Government White Paper on the Single Spine Pay Policy, Working Paper No. 1/2009, http://bit.ly/1JUZwQF. - Government of Ghana, 2016, “Workshop on Comprehensive Public Sector Reform Strategy Document Held,” Accessed March 28, 2016, http://bit.ly/1RjAtM8. - Office of Manpower Economics, 2016, “About Us: What We Do,” Accessed March 28, 2016, https://www.gov.uk/government/organisations/office-of-manpower-economics/about. ### National audit institutions, public service reviews, and country studies - Cour des comptes, 2009, Les effectifs de l’Etat 1980–2008 : Un Etat des lieux (Synthèse du rapport public thématique) (Paris). - Cour des comptes, 2012a, La situation et les perspectives des finances publiques (Paris). - Cour des comptes, 2015b, La masse salariale de l’Etat, enjeux et leviers (Paris). - Cour des comptes, 2015c, La situation et les perspectives des finances publiques (Paris). - Ministère de la decentralisation et de la fonction publique, 2015, Rapport annuel sur l’etat de la fonction publique (Paris: Ministère de la decentralisation et de la fonction publique). - Directorate General of Administration and Public Employment, 2009, “The Decade: Public Employment in Figures, 1996–2005” (Lisbon). - Department of Public Service and Administration (DPSA), 2006, “Personnel Expenditure Review” (Pretoria). - Department of Public Service and Administration (DPSA), 2011, “Personnel Expenditure Review” (Pretoria). ### Academic studies, working papers, and sector research - Bonherbe, Jerome, Bruno Imbert, and Benoit Taiclet, “Management of Government Payroll Expenditure in Benin, Côte d’Ivoire and Mauritania,” Forthcoming IMF Draft Working Paper (Washington: International Monetary Fund). - Bosch, Adél, 2006, “Determinants of Public and Private-Sector Wages in South Africa,” Research Department, South African Reserve Bank (Pretoria). - Callen, Tim, Brian Nolan, and John Walsh, 2010, “The Economic Crisis, Public Sector Pay, and the Income Distribution” (Dublin: Institute for the Study of Labor). - Centeno, Mario, and Manuel Coutinho Pereira, 2005, “Wage Determination in General Government in Portugal,” Bank of Portugal Economic Bulletin (Lisbon). - De Castro, Francisco, Matteo Salto, and Hugo Steiner, 2013, “The Gap between Public and Private Wages: New Evidence for the EU,” European Economy, Economic Papers 508. - Kelly, Elish, Seamus McGuinness, and Philip J. O’ Connell, 2009, “Benchmarking, Social Partnership and Higher Remuneration: Wage Settling Institutions and the Public-Private Sector Wage Gap in Ireland,” Economic and Social Research Institute Working Paper (Dublin). - Manuel Campos, Maria, and Mario Centeno, 2012, “Public-Private Wage Gaps in the Period prior to the Adoption of the Euro: An Application based on Longitudinal Data,” Bank of Portugal Working Paper (Lisbon). - Mishra, Prachi, 2006. “Emigration and Brain Drain: Evidence from the Caribbean,” IMF Working Paper No. 06/25 (Washington). - Mizala Alejandra and others, 2010, "Public-Private Wage Gap in Latin America (1999–2007): A Matching Approach," Documentos de Trabajo 268, Centro de Economía Aplicada, Universidad de Chile. - KIPPRA (Kenya Institute for Public Policy Research and Analysis), 2013, “A Comparative Study on Public-Private Sector Wage Differentials in Kenya,” Policy Paper No. 5 (Nairobi). ### Industrial relations, agreements, and benchmarking - Public Service Benchmarking Body, 2002, “Report of the Public Service Benchmarking Body” (Dublin). - Labour Relations Commission, 2010, “The Public Service Agreement 2010-14, The Croke Park Agreement“ (Dublin). - Labour Relations Commission, 2013, “The Public Sector Stability Agreement 2103-16: The Haddington Road Agreement” (Dublin). - Labour Relations Commission, 2015, “The Public Service Stability Agreement 2013-18: The Lansdowne Road Agreement” (Dublin). *Source: _040816ab - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_040816ab.pdf_