The difference between public and private sector wages for equivalent jobs in Ontario—after a decade of steady increase—currently costs more than $1 billion a year for the government, and this needs to be addressed, according to a study.
The University of Toronto’s Institute for Competitiveness & Prosperity notes that Ontario is paying a public wage premium for those in clerical and administrative positions, but not for those in managerial or strategic positions when compared to the private sector. The result is that the public sector is attractive for an entry-level employee, but it may not be as attractive to those in senior decision-making roles.
Its study notes that 89% of public sector workers are covered by registered pension plans compared with 50% in the private sector for selected occupations.
“First, since the defined benefit plans offer greater security for the employees and the public sector has a greater proportion of those plans, it is fair to say that public employees enjoy, on average, better pension benefits than their private sector counterparts,” according to the study. “Second, and most important, the coverage ratio is what really sets the two sectors apart.”
To address the discrepancy in compensation and pension coverage, the report recommends six actions be taken:
- establish private sector comparators for public administration occupations;
- realign high- and low-ranked occupation compensation;
- emphasize the benefits enjoyed by public workers when negotiating with unions;
- split the burden of funding adjustments for DB plans between employer and unions through union fees;
- improve pension mobility to encourage private sector pensions; and
- cap government pension contributions to match employee contributions up to a maximum absolute value.
“Long-term adjustments in wages need to be made to avoid the disparities and possible unwanted pressures in the labour market,” notes the study. “Moreover, the differences between public and private sectors, particularly in pensions, must be addressed by both sectors.”