Savings can be achieved by cutting compensation costs and/or by reducing the workforce

Compensation costs can be lowered by reducing the size of the workforce and/or cutting wages. While government employment across the OECD has generally been stable over the past decade, at least 17 governments across the OECD have announced workforce reduction measures and/or cuts to salaries and benefits in order to cut costs. On average, governments in OECD member countries employ 15% of the labour force. The size of the Slovenian public sector is very close to the OECD average, with the share of employment in general government at 14.7% of the labour force (OECD, 2011c) (see Figure 1.9).

In some OECD member countries, public sector employment will be scaled back considerably (see Table 1.1). The Czech Republic plans to remove 10% of the public workforce, excluding teachers. By 2014, there should be 330 000 fewer public sector employees in the United Kingdom and around 25 000 fewer in Ireland. Other countries (France, Greece, Portugal and Spain) will only replace a certain number of vacant positions or retiring employees (OECD, 2011d). Slovenia reports a planned 1% reduction across the board of public sector employees. It should be noted that staff reduction plans fall outside the scope of the OECD’s review of

Slovenia’s public sector salary system, but are discussed in detail as part of the broader Public Governance Review.

Table 1.1. Staff reduction targets in selected OECD member countries

Source: OECD (2011), “Restoring Public Finances”, Special issue of the OECD Journal on Budgeting, 2011/2, OECD Publishing, Paris.

OECD data on remuneration for key public sector positions show that wages and salaries represent, on average, 80% of total compensation. Twenty OECD member countries have announced plans to freeze or cut public sector wages. The range of wage cuts is wide and crosses categories of countries, from a two-year wage freeze in the United Kingdom to a 10% wage cut in the Czech Republic, and approximately a 14% wage reduction in Ireland (see Table 1.2). The cutbacks are even higher in Greece if reductions in allowances and earlier implemented cuts from 2009 and 2010 are included. The total quantified wage reduction is between 0.6% of GDP and more than 0.8% of GDP in Hungary, Ireland and Portugal (see Figure 1.11B) (OECD, 2011d). Slovenia reports a 14% wage and intermediate public consumption cut.

In addition, government (as an employer) contributes to retirement plans or pensions, and private health insurance costs or other social contributions. Thus, reforms to the pension and health systems could also have important effects on government compensation costs. However, changes in these areas may be more difficult to implement for current staff, as they involve altering long-term contracts. It should be noted: while pension and health systems form part of government compensation costs, they are not within the scope of this review.

Table 1.2. Wage reduction targets in selected OECD member countries

Source: OECD (2011), “Restoring Public Finances”, Special issue of the OECD Journal on Budgeting, 2011/2, OECD Publishing, Paris.