Public sector wage settlements fall behind the private sector -- and inflation

Have broader public sector workers received larger than average wage settlements than private sector workers?  Have broader public sector settlements exceeded inflation?  

The Ontario Ministry of Labour has just released its report on settlements in August, so we now have data for most of 2014.  The data sheds some light on these questions.   

Broader public sector wage settlements within the provincial government’s domain (i.e. public sector settlements excluding federal and municipal settlements) have significantly increased since last year’s stingy 0.3% average annual settlement.  

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Provincial broader public sector settlements average 1.3% so far in 2014.  Nevertheless, they are on track to be lower than private sector settlements for the fifth year in a row, as private sector settlements have averaged 1.8% in 2014, half a percent higher.

	% Increase	2010	2011	2012	2013	2014	Average %
Settlements	Provincial BPS	1.9	1.4	1.1	0.3	1.3	1.20
	Municipal	2.5	2.3	1.5	2.2	1.5	2.00
	Federal	1.7	1.7	1.7	1.8	1.5	1.68
	Private	2.0	1.9	1.2	2.3	1.8	1.84
Economics	Inflation	2.5	3.1	1.4	1.1	2.5	2.12
	Real GDP Growth	3.4	2.2	1.3	1.3	2.1	2.06
	Nominal GDP Growth	5.2	4.0	3.0	2.7	3.5	3.68
Sources: 2013 and 2014 Budgets for growth and August MOL Collective Bargaining Highlights for settlements and inflation. 2014 inflation is 12 months ending August 2014.

On an annual basis, private sector settlements have averaged 1.84% since 2010, while broader provincial public sector settlements have averaged 1.20%.  That means private sector settlements have averaged 0.64% more per year.

Broader provincial public sector settlements are also on track to fall behind the annual inflation rate for the fifth year in a row.  Here the gap is larger, with Ontario inflation averaging 2.12% annually  for 2010 through (August) 2014.  That contrasts to the average annual provincial public sector wage settlement of 1.20%. 

In other words provincial public sector settlements have, on average, trailed the annual inflation rate by 0.92% each year for the last five years. That is a shortfall of almost 1% per year for five years -- quite a gap. 

This, of course, flies in the face of those who  would like to portray provincial public sector workers as receiving rich settlements. The reality for the last five years is that broader provincial public sector settlements have fallen well short of the annual inflation rate and that private sector settlements have been significantly higher. 

Municipal public sector settlements have done a little better – averaging 2% per year (although this is still short of the inflation average).  Municipal government settlements with police and fire have played a role here.  

Also notable - -the advantage of municipal settlements over provincial broader public sector settlements is at the lowest level since 2010:  municipal settlements in 2014 averaged 1.5%,  only 0.2% higher than broader provincial public sector settlements.  Last year the gap was a huge 1.9%.   

Federal public sector settlements have done better than provincial broader public sector settlements, but worse than municipal settlements and private sector settlements, with an annual average of 1.68% since 2010.   Stephen Harper has increased public sector wages more than the Ontario Liberals. Even so, in 2014, federal settlements have averaged 1.5%, very similar to Ontario provincial broader pubic sector and municipal settlements. 

Since 2010 there has been significant real economic growth, over 10% counting projected growth for 2014. (And, yes, even if we go back and include the recession years of 2008 and 2009, Ontario has still seen significant economic growth - 7% in real growth.)   

Arguably, however, nominal economic growth (a measure combining both real economic growth and inflation) is a more relevant marker for wage increases as wages are paid in nominal dollars -- wages decline in value as inflation eats into their value. So workers need wage increases to offset inflation as well as wage increases to get their share of economic growth.  So it is notable that nominal economic growth has averaged over three times the nominal annual wage settlements in the provincial broader public sector: 3.68% versus 1.20%. Nominal economic growth has doubled annual private sector increases.  

But, far from settlements keeping up with both inflation and economic growth, for the last five years, inflation alone outpaces settlements.  

Bottom line: significant economic growth over the last five years means some people are getting their mitts on a lot more cold hard cash -- even while public and private sector settlements fall short of annual inflation rates.

Employers have successfully used the economic crisis of 2008/9 to set wages back. But declining wages need not be the case.  The last five years are quite different than the previous five years (2004-2009), when public and private sector settlements usually exceeded the annual inflation rate.  From the late 1970s to the early 1990s, Canadian union settlements in both the public and private sectors often followed the inflation rate in the year of settlement. Before the late 1970s, real wage gains were also achieved.

Notably, Statistics Canada reports Ontario inflation at 2.6% for the year ending September 2014, much higher than it has been since 2011.  So public sector settlements may lose more ground to inflation in the short term. Private sector settlements may, however, be more responsive if inflation keeps on  a higher track.   

Photo: See Li -- October 18 rally: "Britain Needs a Pay Rise"