Wage determination in the public sector: a France

69 Pages·1998·0.296 MB·English

by  OECD

D
PUBLIC MANAGEMENT
C
O C C A S I O N A L PA P E R S
No. 21
WAGE DETERMINATION
E
IN
THE PUBLIC SECTOR
A France/Italy Comparison
O
PUBLIC MANAGEMENT
OCCASIONAL PAPERS
No. 21
WAGE DETERMINATION
IN THE PUBLIC SECTOR:
A FRANCE/ITALY COMPARISON
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
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Publie´ en franc¸ais sous le titre :
DE´TERMINATION DES RE´MUNE´RATIONS DANS LE SECTEUR PUBLIC :
COMPARAISON FRANCE/ITALIE
(cid:211) OECD 1998
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FOREWORD
Despite the large share of public employment in total employment in many OECD countries, there
is little information on the impact of (observed and unobserved) personal characteristics on pay.
Moreover, most of the existing evidence is based on aggregate data and cannot take into account the
heterogeneity of the public sector workforce.
This study presents a new method for analysing public sector wages, using micro longitudinal data.
With this method, it is possible to analyse pay differentials among individuals and changes in pay over
time. The impacts of age, occupation, cohort of birth and gender have been estimated using compara-
ble samples in the French and Italian civil services over a similar period. This kind of analysis should
prove valuable to those responsible for human resource management in the civil service, since it
focuses on the importance of individuals’ wage careers. In particular, it provides information on the
issue of gender pay discrimination, looking at the way men and women rise through the hierarchy as
opposed to comparing aggregate pay data between men and women.
This report was prepared by Professor Yves Guillotin, from Universite´ du Maine, and Profes-
sor Claudio Lucifora, from Universita` Cattolica di Milano. It is published on the responsibility of the
Secretary-General of the OECD. The Secretariat is solely responsible for any errors, omissions or
misinterpretation.
3
TABLE OF CONTENTS
Executive summary ................................................................... 7
Introduction ......................................................................... 9
I. Institutional features and recent reforms in France and Italy........................ 9
The case of France ..................................................... 9
The case of Italy ....................................................... 10
II. Evolution of pay and employment ........................................... 11
The case of France ..................................................... 11
The case of Italy ....................................................... 11
Chapter 1. Data sets: a description....................................................... 17
I. France ................................................................ 17
II. Italy .................................................................. 18
Chapter 2. The structure and dynamics of wages ............................................ 23
I. Wage growth and distribution............................................... 23
Different approaches.................................................... 23
The Italian case........................................................ 25
The French case ....................................................... 29
II. The evolution of the wage structure by socio-economic group ...................... 33
III. Patterns of wage differentials by sub-sector in Italy .............................. 39
IV. Patterns of wage differentials by occupation in France ............................ 42
Chapter 3. Age earnings profiles......................................................... 45
I. Age earnings profiles by cohort ............................................. 45
Chapter 4. An analysis of the gender wage gap ............................................. 57
I. Analysis of variance ...................................................... 57
II. Closing the gap: an econometric analysis ...................................... 58
Estimation of the gender wage differential ................................... 58
Chapter 5. Concluding remarks.......................................................... 63
Notes .............................................................................. 65
References.......................................................................... 66
Annex .............................................................................. 67
5
EXECUTIVE SUMMARY
This study analyses pay determination mechanisms in the public sector in France and Italy, using
micro longitudinal data, at the individual level. The study’s originality lies in the use of this sort of data,
which make it possible to monitor not just differences among individuals, but also changes in individu-
als’ pay over time. The aggregated data habitually used do not reflect the heterogeneity of the public
sector deriving, in particular, from the age, skill, job content and unit size structure which differs from
the private sector. Using longitudinal data makes it possible to monitor pay profiles, i.e. trends in pay
throughout working life, which reflect an individual’s real experience, not a theoretical profile. Likewise,
it is possible to identify the effects that have an impact on an individual’s wage career, such as age
looked at simply as an effect of ageing, but also in terms of increases awarded on the basis of
experience and promotions. The cohort to which an individual belongs also influences his pay profile.
Finally, the use of longitudinal data also makes it possible to identify the impact of an individual’s
characteristics that vary with the passing of time (e.g. age or occupation).
The study sets out first of all to analyse trends in the structure of wages and the characteristics of
pay differentials (by profession, functional sub-sector, sex, etc.). The emphasis then switches to an
analysis of earnings profiles by cohort. The breakdown by cohort is not a technique frequently used, but
it is possible in this way to track the pay profiles of individuals in the same cohort of birth over a given
period (here, individuals are monitored from 1978 to 1990 and from 1980 to 1991 for France and Italy,
respectively).
Cross-section data and longitudinal monitoring give different readings. It can be seen that, at the
same age, the newer generations in France are better paid than the older generations, whereas cross-
section data show only the median wage received in a given year. It is important to bring out the cohort
effect in order to understand an individual’s wage at a given point in time. In France and Italy, the
trends followed by similar cohorts of birth have differed radically, ceasing to rise in France as of 1982-83,
whereas in Italy they rose rapidly as of 1984-85. There are also differences between the two countries as
regards the level of pay across generations, the younger generations being better paid than the older
ones at the same age in Italy. A more detailed analysis shows that gender wage ratios vary according to
generation. For instance in Italy, wage differentials are smaller at the beginning and at the end of a
career, while pay for males is higher than that of females in mid-career years. In France, women are
systematically at a disadvantage, whatever their cohort of birth, but cohort analysis also shows that the
disadvantage does vary over the period.
At a more disaggregated level it is possible to analyse the different categories of job, the findings
showing that managers enjoy faster-rising wages than do staff as a whole. Analysis of the pay of
operative grades shows the limitations of cross-section data, the latter pointing to a decrease in
operatives’ pay as of age 45, whereas longitudinal data show that, in reality, wages stagnate as of age 45.
Part III of the study tackles the issue of wage differentials in greater detail, using an econometric
model to assess the impact of various characteristics (occupation, sex, cohort of birth and observation
period). An analysis of pay differentials between men and women shows clearly that, when age and
occupation effects are eliminated, the pay gap narrows considerably. To be valid, therefore, analysis of
wage discrimination by sex has to take these factors into account. The key question that those responsi-
ble for human resource management have to be able to answer is whether women rise through the
hierarchical scale of the civil service in the same way as men. 7
INTRODUCTION
In most European countries, a significant proportion of the total workforce is employed in the
public sector of the economy. Notwithstanding the centrality of public employment, there is surpris-
ingly little systematic analysis of pay determination. Empirical analyses of the public sector normally
concentrate upon public expenditure, with little regard for employees whose wages constitute the
largest proportion of that expenditure. In particular, even if a large number of studies – in several
countries – provide a rather detailed description of the institutional mechanisms regulating wage
determination in the public sector, very little is known about the impact on pay outcomes of (observed
and unobserved) personal characteristics. Moreover, although most of the existing evidence draws on
research done using aggregate data, it should be noted that, in the light of the varied categories of
employment within the public sector and the significant differences among public institutions in different
countries, a significant heterogeneity is likely to exist in the public sector workforce, which aggregate
data cannot reflect (OECD, 1994, 1995).
In this respect, the present study intends to provide a highly disaggregated portrait of public
sector pay determination from a comparative point of view both in terms of pay policies and pay
outcomes. In particular, the main objective is twofold: first, to shed light on public sector pay-setting
practices providing a quantitative analysis of the structure/evolution of pay using micro-data; and,
second, to compare and contrast the recent experience of Italy and France.
The structure of the study is as follows. In the remainder of the introduction, the main features of
the public sector institutional setting are presented and contrasted across France and Italy. Next, the
evolution of aggregate pay and employment in both countries is shown. Chapter 1 presents the micro-
data sets used in the empirical analysis with a description of the sources and the definition of the
variables. The structure and the evolution of wages in the public sector are reported in Chapter 2.
Chapter 3 offers an analysis of the age earnings profiles disaggregated by gender and main socio-
economic categories. In Chapter 4, ‘‘net’’ estimated wage differentials – holding other factors remaining
constant – are contrasted with ‘‘gross’’ differentials for a number of selected characteristics. The influ-
ence on wages of both workers’ personal attributes and institutional characteristics are considered.
Finally, some concluding remarks are contained in Chapter 5.
I. INSTITUTIONAL FEATURES AND RECENT REFORMS IN FRANCE AND ITALY
The case of France
Public sector salary provisions are mainly governed by the Public Service Regulations, which date
back to 1946.
Since that date, many changes have been made to these provisions, but this has never affected the
distinctiveness of these regulations. This job classification system with its related pay scales defines a
very rigid basis for changes in pay, for it also includes increases relating to promotion and seniority.
The system is mainly based on:
• A number of grades (A, B, C, D) based on the minimum educational qualifications required; it
should be pointed out that Grade D was abolished in the period 1990-1996. 9
WAGE DETERMINATION IN THE PUBLIC SECTOR: A FRANCE/ITALY COMPARISON
• Job rankings within the civil service occupational groups (over 1 000) which define advancement
steps that mainly depend on length of service. More rapid advancement is possible, however, as
a result of internal or external recruitment competitions.
Very roughly speaking, the changes in a public servant’s pay reflect:
• General measures which apply to the public service as a whole following negotiations with the
trade unions and result in a change of value in the index point or the distribution of additional
index points.
• Special measures in response to demands from certain public service occupational groups
(e.g. the programme for primary school teachers between 1983 and 1988). In the 1990s, the
methods of determining salaries were modified by two important special plans (the Durafour
programme for the public service as a whole and the Jospin programme for the national educa-
tion system). A distinctive feature of these programmes is that they reorganised career structures
by shortening the length of service in a particular step, revising the so-called pyramid rule for the
various occupational groups, etc., in addition to the more traditional measures involving index
points and allowances.
• Measures concerning advancement or promotion as defined by the regulations for the occupa-
tional groups of the public service concerned.
Total earnings consist of basic pay as defined by the regulations, plus housing allowance for
differences in the cost of living, a family allowance depending on the number of children, and possibly
allowances for specific constraints. Bonuses usually connected with a particular occupational group of
the civil service may be paid. Net pay is obtained by subtracting the employee’s social security
contributions but not his income tax.
As can be seen, the methods of determining pay in the public service have little in common with
those of the private sector. Accordingly, it is very difficult to make comparisons. Recent attempts
(INSEE, 1996, see Annex) very clearly show the limits of such an exercise and stress the importance of
qualification and seniority structural effects on pay levels and trend comparisons. It would seem,
however, that the dispersion of pay is on the whole less in the public service (20 per cent less on the
basis of the interdecile ratio).
Some qualifications apply only to the public sector: a judge’s work cannot strictly speaking be
compared with any occupation in the private sector. The remark also applies to a customs officer and, to
a very large extent, to a teacher. These occupations have little or no place in the private sector, where
the educational qualifications required for them have scarcely any market value. To make a proper
comparison, it would be necessary to have the same skills classification system for both sectors which,
in the case of a detailed breakdown, seems impossible.
The overall differences in pay to the advantage of the public sector are to a large extent due to
structural effects relating to qualifications (generally higher in the public sector), but can also be
explained by differences in seniority, in duties carried out, in geographical distribution, etc.
A comparison of overall trends is also quite obviously affected by the same difficulties, com-
pounded by the fact that structural changes in the two sectors differ over time.
Lastly, the public sector itself is not homogeneous. Structural effects relating to skills are the
reason, for example, that:
• public hospital staff are, in overall terms, paid less than their counterparts in the private sector
(about 10 per cent less in 1994);
• the pay of regional and local government employees is 25 per cent less than in the private
sector, for they are mostly in low-skilled jobs.
The case of Italy
In Italy the set of rules that governs the status of civil servants and the practice of pay determina-
10 tion is the result of a series of legislative interventions which proliferated over time and contributed to
INTRODUCTION
the complexity of public sector human resource management. The so-called ‘‘Legge Quadro’’ (L.n.93/1983)
marked the first significant effort to reorganise both pay determination procedures and the occupa-
tional classification of workers1 (Presidenza del Consiglio dei Ministri, 1992). The growth of public spending
and the huge debt accumulated over the years influenced most of the measures taken in the last
decade by the Italian government with respect to the evolution of pay for civil servants. However, only
very recently (‘‘Accordo sul costo del lavoro’’, D.L.n.29/1993) both the status and the practices of pay
determination in the public sector were deeply reformed and most standard private sector labour
market practices introduced.
Traditionally, public sector pay determination in Italy has been characterised by collective negotia-
tions between the unions and the government and – for a small number of sub-sectors not covered by
the ‘‘Legge Quadro’’ – by legislative intervention.2 In the former case, several levels of bargaining exists
which may take place nationally or be decentralised: inter-sectoral and sectoral (i.e. as defined by the
‘‘Legge Quadro’’) are negotiated at national level while further agreements can be negotiated at the level
of single sub-sector (i.e. ministries, local government, health, etc.). The main level for negotiations is the
national level.3 Only recently, an independent Agency (ARAN – Agenzia per la rappresentanza sindacale nel
pubblico impiego) was set up in order to negotiate pay levels and job conditions for most public sector
employees (Marsden, 1994).
Before the 90s, a system of indexation of salaries over price increases was in force; however, it was
reformed several times during the 80s and definitively abolished in 1992-93. Now the protection of the
purchasing power of earnings is pursued through collective negotiations with reference to the govern-
ment ‘‘programmed’’ inflation rate.
II. EVOLUTION OF PAY AND EMPLOYMENT
The case of France
Since the start of the 1980s, there has been little change in the number of public servants, except
for the period 1980-1982 when some non-established staff obtained permanent appointments. The
trend since the start of the 1990s has been towards a standstill or even a decrease in staff numbers.
A high proportion (60 per cent) of public servants are teachers. To this first group should be added,
The National Health Service (700 000 employees), Defence and regional and local government staff
(1 200 000) and assimilated staff employed by the CdF, EDF-GDF, SNCF and RATP (376 000). The case of
the Post Office and France Te´le´com (440 000 employees), which became corporate bodies in 1991, is
also to be taken into account for the 1980s.
The trend of public sector pay in the 1980s was mainly based on general increases, not taking any
structural changes into account. The rise in pay slowed down, however, in the 1980s following the period
of disinflation and wage restraint in the second half of the decade.
Since the number of public servants has stabilised in overall terms, structural effects relating to
qualifications and seniority has played a significant role in the growth of the civil service pay bill. An
interesting example of these effects can be seen in the upgrading of primary school teachers from
Grade B to Grade A. Are the observed changes in salaries to be seen as a change in qualifications or as
a kind of promotion?
The case of Italy
In the last decades, employment in the public sector grew enormously; between 1970 and 1984 the
number of public employees increased by 43 per cent (the same figure for the private sector is 13 per
cent). Only in the second half of the 1980s public sector employment growth slowed down and
eventually reverted its trend after 1990 when growth rates became almost negative (see Figure 1). In
1990, as shown in National account statistics, public employees represented 23 per cent of the total
number of employees in the economy, and the total wage bill was equal to 31 per cent of total public
expenses (net of interest). 11
WAGE DETERMINATION IN THE PUBLIC SECTOR: A FRANCE/ITALY COMPARISON
u Figure 1. Percentage change in employment in the public sector in Italy
% %
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0 0
81 82 83 84 85 86 87 88 89 90
In Table 1, we report the composition of public sector employment by different sub-sectors at
different points in time. It can be noted that the education sub-sector, on its own, employs one third of
total employment, while the local government and the health service each employ nearly 21 per cent of
the total (Dell’Aringa and De Luca, 1991; Commissione Carniti, 1987).
The institutional changes and different trends in employment growth, which characterised the
Italian public sector in the last decades, also produced significant changes in the dynamics and the
structure of wages. Looking at the evolution of pay in the private and the public sector, different sub-
periods can be identified. In particular, whilst during the 1970s both the sustained employment growth
and the indexation mechanism contributed to the slow wage dynamics and to the progressive reduction
of wage differentials (also with respect to the public-private pay gap), in the 1980s (particularly in the
Table 1. Public sector composition by sub-sectors in Italy (1985-1995)
Sub-sector 1985 1990 1995
1. Ministries 261 000 (8.7) 277 909 (8.9) 288 104 (8.3)
2. Public companies 77 300 (2.5) 81 023 (2.6) 54 302 (1.6)
3. Education 1 088 081 (36.2) 1 147 665 (36.9) 1 102 105 (32.6)
4. University 42 120 (1.4) 96 459 (3.1) 111 059 (3.2)
5. Police1 277 000 (9.2) n.a. 320 521 (9.4)
6. Magistrates1 8 000 (0.2) n.a. 9 738 (0.2)
7. Health 499 560 (16.6) 639 055 (20.5) 702 234 (20.8)
8. Local government 655 011 (21.8) 767 670 (24.7) 693 906 (20.5)
9. Other 91 250 (3.0) 94 310 (3.0) 93 264 (2.7)
Total (1-9)2 2 999 322 (100.0) 3 104 091 (100.0) 3 375 233 (100.0)
Total public sector 3 439 500 3 624 300 n.a.
1. Not included in the ‘‘Legge Quadro’’ (i.e. pay levels set by Law).
2. Excluding various departments not covered by the ‘‘Legge Quadro’’.
12 Source: Osservatorio sul Pubblico Impiego.