FRONTIER CENTRE FOR PUBLIC POLICY THE SIZE AND COST OF THE PUBLIC SECTOR IN WESTERN CANADA BY RODNEY A. CLIFTON AND AND JACKSON DOUGHART MARCO NAVARRO-GÉNIE MARCH 2017 FRONTIER CENTRE FOR PUBLIC POLICY Ideas that change your world / www.fcpp.org 1 ATLANTIC INSTITUTE FOR MARKET STUDIES FRONTIER CENTRE FOR PUBLIC POLICY Rodney A. Clifton, B.Ed., M.Ed. (Alberta), Ph.D. (Toronto), and Fil.Dr. (Stockholm), is the Vice President of Research at the Frontier Centre for Public Policy and a Senior Fellow at the Atlantic Institute for Market Studies. He is also a Professor Emeritus at the University of Manitoba and a Retired Fellow at St. John’s College. His research is on educational and social policies. Jackson Doughart, B.A. (Prince Edward Island), and M.A (Queen’s), is Research Coordinator at the Atlantic Institute for Market Studies. He has an academic background in political science, having received a master’s degree in political theory and international relations. He writes regularly on regional policy issues, with columns appearing in the National Post, the Charlottetown Guardian, Halifax’s Chronicle Herald, and Saint John’s Telegraph-Journal. Marco Navarro-Génie, B.A. (Concordia), M.A., and Ph.D. (Calgary), is the President and CEO of the Atlantic Institute for Market Studies. He served as Vice President of Research at the Frontier Centre for Public Policy following two decades in academe. His current areas of interests are fiscal federalism, higher education, immigration and labour, and energy and environment. Dr. Navarro-Génie comments regularly on Canadian institutions, policy, and politics for various local, national, and international print and broadcast outlets. FRONTIER CENTRE FOR PUBLIC POLICY 203-2727 Portage Avenue, Winnipeg, Manitoba Canada R3J 0R2 Tel: 204-957-1567 Email: manitoba@fcpp.org The Frontier Centre for Public Policy is an independent, non-profit organization that undertakes research and education in support of economic growth and social outcomes that will enhance the quality of life in our communities. Through a variety of publications and public forums, the Centre explores policy innovations required to make the prairies region a winner in the open economy. It also provides new insights into solving important issues facing our cities, towns and provinces. These include improving the performance of public expenditures in important areas such as local government, education, health and social policy. The authors of this study have worked independently and the opinions expressed are therefore their own, and do not necessarily reflect the opinions of the board of the Frontier Centre for Public Policy. Copyright © MMXVII by the Frontier Centre for Public Policy. Date of First Issue: March 2017. Reproduced here with permission of the authors. Any errors or omissions and the accuracy and completeness of this paper remain the responsibility of the authors. ISSN 1491-78 I deas that change your world www.fcpp.org 2 FRONTIER CENTRE FOR PUBLIC POLICY THE SIZE AND COST OF THE PUBLIC SECTOR IN WESTERN CANADA BY RODNEY A. CLIFTON AND JACKSON DOUGHART AND MARCO NAVARRO-GÉNIE MARCH 2017 Co-published in association with ATLANTIC INSTITUTE FOR MARKET STUDIES Acknowledgement The authors thank Philip Blain, Ed Buettner, and John Long for their critical comments and suggestions on previous drafts of this report. None of these colleagues, however, are responsible for any errors or omissions. Note: The data for this paper were collected in December 2016 using data from Statistics Canada CANSIM Table 383-0030. This was the same data set used in the AIMS paper, The Size and Cost of the Public Sector in Atlantic Canada. On Feb 10, 2017, Statistics Canada announced (http://www.statcan.gc.ca/daily-quotidien/170210/dq170210b-eng.htm) that it had replaced Table 383-0030 with Table 383-0033. The new table will continue to be updated, while the old table has been archived on the StatsCan website. TABLE OF CONTENTS Executive Summary.................................................................................................................... 4 Introduction.............................................................................................................................. 5 The Size of the Public Sector...................................................................................................... 6 Conclusion................................................................................................................................ 10 Bibliography.............................................................................................................................. 11 Endnotes................................................................................................................................... 11 3 FRONTIER CENTRE FOR PUBLIC POLICY EXECUTIVE SUMMARY Public sector workers represent a major cost for all levels of government: municipal, provincial, and federal. This study examines the size and the cost of the public sectors in all provinces, but focuses on Western Canada: Alberta, British Columbia, Manitoba, and Saskatchewan. The data were drawn from Statistics Canada and examine the share of the workforce in the public sector, the number of public sector employees per 1,000 residents, and the share of the total compensation awarded to public sector workers in all provinces. The study shows that the number of public sector employees is proportionally higher in Manitoba and Saskatchewan than in Alberta and British Columbia. In fact, Manitoba and Saskatchewan have 111 public sector employees per 1,000 residents, Alberta has 79 employees, and British Columbia has 76 public sector employees per 1,000 residents. Finally, the authors draw attention to reducing the number of public sector workers, and thus government expenditures, as a means of providing substantial savings for taxpayers in Manitoba and Saskatchewan. 4 FRONTIER CENTRE FOR PUBLIC POLICY INTRODUCTION four Western provinces: Alberta, British Columbia, Manitoba, and Saskatchewan. The data were obtained from Statistics Canada by researchers at AIMS.4 Further, this study includes an historical trend of the size of the public sector for these four provinces, showing changes in the number of provincial and municipal public employees from 1997, the earliest year for which data are available, to 2015, the latest year for which data are reported. To compare public sector wages to private sector wages, the authors calculated the share of the total employment income in each of the four provinces that public sector workers receive. Recent research shows that public sector workers receive substantially higher wages than comparable private sector workers.5 We calculated the cost of public sector workers in the four Western provinces, in comparison to the Canadian average. Surprisingly, if Manitoba employed the national average of 83 public sector employees per 1,000 residents, there would be over 36,000 fewer public sector workers, resulting in a saving of over $2.2 billion a year in salaries alone. In 2016, the Atlantic Institute for Market Studies (AIMS) published The Size and Cost of Atlantic Canada’s Public Sector, 2015, showing that the public sectors in the four Atlantic provinces were unusually large in comparison with the public sectors in other provinces.1 Obviously, the public sector is particularly larger in provinces that have federal government offices, such as Ontario and Quebec, and in provinces with federal regional offices.2 But it was particularly surprising to see how large — and expensive — the public sector was in the Atlantic provinces. It could be argued that because these provinces received equalization payments from the federal government, they tended to be less costeffective than if they’d had to raise all the money by taxing their own citizens.3 The present study extends AIMS’s work by examining the size and the cost of the public sector in the 5 FRONTIER CENTRE FOR PUBLIC POLICY THE SIZE OF THE PUBLIC SECTOR points higher in Saskatchewan. Only Nova Scotia, at 25.5 per cent, and Newfoundland and Labrador, at 27.8 per cent, have more public sector employees than Manitoba. Data reported in Figure 1 show that, as a percentage of all jobs, the number of public sector employees in Manitoba and Saskatchewan is much higher than the national average, while for Alberta and British Columbia the public sector is smaller than the national average.6 In fact, this figure shows that 23.9 per cent of all jobs in Manitoba and 22.5 per cent in Saskatchewan are in the public sector compared with 15.2 per cent in Alberta and 16.8 per cent in B.C. Nationally, 18.4 per cent of all jobs are in the public sector. In other words, the public sector is about 5.5 percentage points higher than the national average in Manitoba and 4.1 percentage The public sector jobs in Figure 1 include federal employees, thus conflating the number paid entirely by provincial residents and equalization payments from the federal government. The cost of federal employees, of course, is borne by all Canadian taxpayers. As such, the combination of provincial and municipal employees is probably a better measure of the financial burden on provincial taxpayers. For this reason, federal employees have been removed from the data in Figure 2. FIGURE 1 (2015) 30% 25% Percentage of All Jobs Public Sector Jobs as a Percentage of All Jobs 20% 15% 10% 5% Canadian Average 15.2% 16.6% 16.8% 20.6% 21.6% 22.5% 23.5% 23.9% 25.5% 27.8% 0% Western Average AB ON BC PQ NB SK PEI MB NS NL FIGURE 2 (2015) 30% 25% Percentage of All Jobs Provincial Public Sector Jobs as a Percentage of All Jobs 20% 15% 10% 5% Canadian Average Western Average 14.1% 14.2% 15.2% 17.2% 18.6% 18.6% 20.8% 21.0% 21.6% 25.0% 0% AB ON BC 6 NB PQ PEI NS SK MB NL FRONTIER CENTRE FOR PUBLIC POLICY FIGURE 3 (2015) 120 PS Employees per 1,000 Residents Public Sector Employees per 1,000 Residents 110 100 90 80 70 60 Canadian Average 73 75 79 81 92 93 101 109 111 111 50 Western Average ON BC AB Not surprisingly, the trend in Figure 2 is similar to the trend in Figure 1. Manitoba and Saskatchewan are substantially above the national average, while Alberta and British Columbia are below average. The largest number of public sector workers is in Newfoundland and Labrador at 25.0 per cent, compared with the national average of 16.6 per cent. But in Figure 2, Manitoba replaces Nova Scotia with the second largest percentage of public sector employees at 21.6 per cent while Alberta has the fewest employees at 14.1 per cent, with BC slightly higher at 15.2 per cent.7 NB PQ PEI NS NL SK MB another way to calculate the relative size of the public sector is to compare this sector with provincial populations. Figure 3 reports the number of municipal and provincial public sector workers per 1,000 residents in each of the ten provinces. Manitoba and Saskatchewan now have the highest number of public sector employees in the country, each at 111 per 1,000 residents. In comparison, British Columbia has 75 and Alberta has 79 public sector workers per 1,000 residents. The Canadian average is 83 per 1,000 residents. Four provinces — Alberta, BC, New Brunswick, and Ontario — are below average, and six provinces — Manitoba, Newfoundland and All residents of a province, not just working people, use provincial and municipal services. Consequently, FIGURE 4 (1997 - 2015) 120 PS Employees per 1,000 Residents Public Sector Employees per 1,000 Residents in the Four Western Provinces 110 100 90 80 BC AB SK MB Canada 70 60 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 7 FRONTIER CENTRE FOR PUBLIC POLICY FIGURE 5 (2015) 35% Percent Total Provincial Compensation Public Sector Compensation as a Percentage of Total Provincial Compensation 30% 25% 20% 15% 10% 5% Canadian Average Western Average 15.1% 18.2% 18.7% 21.3% 24.6% 25.8% 26.0% 26.4% 26.4% 29.8% 0% AB ON BC Labrador, Nova Scotia, PEI, Quebec, and Saskatchewan — are above average. PQ SK NS MB NL NB PEI made $46,500, 25 per cent less. This figure shows that nationally public sector employees earn 19.4 per cent of the total compensation, while in Manitoba they earn 26.0 per cent and in Saskatchewan they earn 24.6 per cent. In stark contrast, public sector employees earn 15.1 per cent of the total compensation in Alberta and 18.7 per cent in BC. Figure 4 presents the historical trends in public sector employees for the four Western provinces along with the national average. The trends for BC and Alberta are clearly very different from the trends for Manitoba and Saskatchewan. Over the 18-year period, the public sector in British Columbia has been consistently lower than the other three provinces, increasing from 71 to 75 employees per 1,000 residents, and Alberta has maintained the second lowest percentage of public employees, only increasing from 72 to 79 per 1,000 residents. On the other hand, the proportion of provincial and municipal employees in Manitoba and Saskatchewan has been consistently high, increasing from 95 to 111 per 1,000 residents. Obviously, the public sector is much larger in Manitoba and Saskatchewan, and growing at a faster rate, than in Alberta and British Columbia. The size of the public sector in Manitoba and Saskatchewan doubtless places a substantial burden on provincial taxpayers unless the expenses are offset by equalization payments, in which case it places a burden on all Canadian taxpayers. In order to estimate the tax burden, we calculated the number of public sector employees and the savings that would accrue if Manitoba and Saskatchewan employed workers at the average national rate of 83 per 1,000 residents. The third column in Table 1 shows that Saskatchewan and Manitoba had 28 more public sector employees per 1,000 residents than the national average, while Alberta had 4 fewer and BC had 8 fewer than the national average. The fourth column shows the total number of public sector employees, above or below the national average, relative to the provincial population. Surprisingly, BC would need almost 35,000 more public sector workers and Alberta would need over 15,000 more workers to reach the Canadian average. On the other hand, Saskatchewan had over 31,000 more and Manitoba had over 36,000 more provincial and municipal employees than the national average. The Financial Burden of the Public Sector Figure 5 compares the provincial and municipal public sector compensation as a proportion of the total compensation of all employees in each of the provincial labour forces. These data confirm the widely-held belief that public sector workers receive higher incomes, on average, than private sector workers.8 In Manitoba, for example, the average public sector worker earned $62,141 in 2015, while the average private sector worker 8 FRONTIER CENTRE FOR PUBLIC POLICY Table 1 The Number and Cost of Public Sector Salaries, in Comparison with the National Average, in the Four Western Provinces The Number of Employees per 1,000 The Total Number of The Cost of Salaries for Public Sector Employees The Number of Public Residents Above Public Sector Employees The Average Salary Above or Below the Sector Employees per or Below the Above or Below the of Public Sector National Average Province 1,000 Residents National Average National Average Employees ($ Millions) BC 75 -8 -34,962 $69,561 -$2,432 AB 79 -4 -15,119 $81,141 -$1,227 SK 111 28 31,428 $68,299 $2,147 MB 111 28 36,659 $62,141 $2,278 Finally, column 6 shows the potential savings for the provinces that employ either more or fewer public sector workers than the national average. Here we see that B.C. spent $2.4 billion less than it would have if its public sector was at the national average, and Alberta spent $1.2 billion less. On the other hand, Saskatchewan spent $2.1 billion more and Manitoba spent $2.2 billion more than they would have if their public sectors were at the national average.9 In other words, these two provincial governments spent over $1,500 per resident on the salaries of excessive public sector workers in 2015. These analyses demonstrate that employing more public sector workers puts substantial demands on taxpayers, who ultimately pay their salaries. 9 FRONTIER CENTRE FOR PUBLIC POLICY CONCLUSION to reach the national average (83 per 1,000). Obviously, getting the public service down to the national average would be a relatively slow and painful exercise. Yet, such cost-cutting is necessary, in contrast with allowing spending to increase as it has over the last 18 years. Canadian provinces are unique in many ways. The federal government has the majority of its offices in Ontario and Quebec. Moreover, Alberta, British Columbia, Ontario, and Quebec individually have more residents than the four Atlantic provinces together. As a consequence, these relatively large provinces may benefit from economies of scale; that is, they may be able to deliver public services with fewer provincial and municipal public servants than provinces with fewer residents. This recommendation is especially important in all the so-called “have-not” provinces that, like Manitoba, receive significant equalization payments from the federal government.11 What if federal transfers decline, perhaps because of economic stagnation in the “have” provinces? In this case, spending restraints would no longer be optional, and the have-not provinces would be forced to reduce the size and cost of their public services without the luxury of careful and strategic planning. Despite these differences, all provinces have relatively large public sector wage bills. In Western Canada, Manitoba and Saskatchewan have substantially larger and more expensive public sectors than Alberta and British Columbia. There is, however, little or no evidence that provincial and municipal services are better in Manitoba and Saskatchewan, which suggests that the number of public sector workers in these two provinces could be reduced without affecting the services delivered to citizens. Because the public sector in Manitoba and Saskatchewan is largely unionized, it will be difficult — but not impossible — to reduce the size of this sector. Manitoba, specifically, has a $1 billion deficit this year that could be eliminated by reducing the excessive number of public sector employees.10 Consequently, the provincial governments in both provinces should examine the employment levels in all their government departments, education, health care, justice, social services, etc., to enhance efficiency and effectiveness with fewer employees. Nevertheless, there are good reasons for the salaries of public sector employees to be generous.12 All provinces need high-quality public sector workers, and holding onto excellent employees means paying salaries and benefits that are competitive across the country and even internationally. At the same time, responsible governments must not squander public funds. Unfortunately, it seems relatively easy for “havenot” provinces, like Manitoba, to overspend because they receive federal equalization grants.13 Essentially, these analyses show that the Manitoba and Saskatchewan governments are paying too much for the public services their citizens receive. As noted, we have not included the employees of federal and provincial crown corporations in these analyses which would make the public sector considerably larger and much more expensive. Nevertheless, the stark reality is that large debt loads and debt-servicing costs may rise if, as expected, interest rates increase, placing additional strain on provincial budgets. For Manitoba and Saskatchewan, reducing the number of public sector employees and restraining their wages will become necessary — even if undesirable — in the years to come. Realistically, no government, not even a prudent and fiscally-responsible government, could eliminate over 30,000 provincial and municipal public service positions in the short term. Nevertheless, a government can slowly reduce the number of positions by not hiring new employees and by not replacing employees who resign or retire. If, for example, the public sector in Manitoba could be reduced by two per cent a year, with about oneper cent growth in the provincial population, it would only take three years for Manitoba to reach the level of Nova Scotia (101 per 1,000), six years to reach the level of Prince Edward Island (93 per 1,000), and eight years 10 FRONTIER CENTRE FOR PUBLIC POLICY BIBLIOGRAPHY Doughart, Jackson and Marco Navarro-Genie, The Size and Cost of the Public Sector in Atlantic Canada, 2015. Halifax, NS: Atlantic Institute for Market Studies, November 2016. Eisen, Ben, Stealth Equalization: How Federal Government Employment Acts as a Regional Economic Subsidy in Canada. Winnipeg, MB: Frontier Centre for Public Policy, November 2010. Eisen, Ben and Jonathan Wensveen, The Size and Cost of Manitoba’s Public Sector. Winnipeg, MB: Frontier Centre for Public Policy, August 2011. Frances, Diane, “Slay sacred cows before populists do,” Financial Post, February 11, 2017. Lammam, Charles, Milagros Palacios, Feixue Ren, and Jason Clemens, Comparing Government and Private Sector Compensation in Canada. Vancouver, BC: Fraser Institute, December 2016. Martin, Nick, “Manitoba’s deficit climbs to $1 billion,” Winnipeg Free Press, December 21, 2016. ENDNOTES 1. Jackson Doughart and Marco Navarro-Genie, The Size and Cost of the Public Sector in Atlantic Canada, 2015, (Halifax, NS: Atlantic Institute for Market Studies, November 2016). See also Ben Eisen and Johathan Wensveen, The Size and Cost of Manitoba’s Public Sector. (Winnipeg, MB: Frontier Centre for Public Policy, August, 2011). 2. Ben Eisen, Stealth Equalization: How Federal Government Employment Acts as a Regional Economic Subsidy in Canada, (Winnipeg, MB: Frontier Centre for Public Policy, November 2010). 3. See Eisen, 2010. 4. Doughart and Navarro-Genie, 2016. 5. Charles Lammam, Milagros Palacios, Feixue Ren, and Jason Clemens, Comparing Government and Private Sector Compensation in Canada, (Vancouver, BC: Fraser Institute, December 2016). 6. In this report, the federal public sector includes all services provided by the government except for military personnel. Provincial and municipal public sectors include all services provided in colleges and universities, elementary and secondary schools, health care, justice, social services, etc. Neither federal nor provincial crown corporations are included in these analyses. 7. Comparing the data in figures 1 and 2 shows that three of the four Atlantic provinces, PEI (4.9 per cent), Nova Scotia (4.7 per cent), and New Brunswick (4.4 per cent), have the highest percentage of federal employees which, surprisingly, is higher than in Ontario (2.4 per cent) or Quebec (2.0 per cent). 8. See Eisen, 2010. 9. The authors calculated these data by multiplying the number of public sector employees, above or below the national average, by the average public sector salary in each of the four provinces. 10. Nick Martin, “Manitoba’s deficit climbs to $1billion,” Winnipeg Free Press, December 21, 2016. 11. Diane Francis, “Slay sacred cows before populists do,” Financial Post, February 11, 2017. 12. See Eisen, 2010. 13. See Francis, 2017, 11 If FBIJNTIEB IIENTBE lull? run