IMF Study Explores How to Better Manage Government Pay and Employment

Governments under pressure to better manage their wage bills

Wage and hiring freezes provide only temporary relief from budget pressures

Structural reforms key to adjusting wage bill while protecting services

The paper, “Managing Government Compensation and Employment,” which builds on new data sets and 20 country case studies, shows that governments can accommodate changing demands and deliver high-quality public services by better managing their wage bill.

Speaking to IMF Survey, Mercedes Garcia-Escribano, Deputy Division Chief, and Teresa Rose Curristine, Senior Economist, in the IMF’s Fiscal Affairs Department, discuss ways in which governments can improve their management of pay and employment.

IMF Survey : Why is it important for governments to effectively manage their wage bill?

Garcia-Escribano: Government pay and employment policies are important for the delivery of quality public services, which are crucial for the functioning of economies and prosperity of societies. Since the wage bill is a major item in government spending (on average it represents about a quarter of the budget), its management is a priority in all countries.

The challenge is even more pressing when aging populations demand rising health and pension spending. This is the case in many advanced economies. Many emerging markets and low-income developing economies face demands for expanding access to key services, such as education and health care, to support inclusive economic growth and poverty alleviation.

IMF Survey : What can they do to improve the quality of public services while at the same time address rising wage bill pressures?

Curristine: To accommodate changing demands and deliver high-quality public services, countries need appropriate institutions to better manage their wage bill. These institutions will ensure the following:

• Fiscal planning. Government wage bill increases do not result in a deterioration of the country’s fiscal position.

• Compensation. Government pay and employment policies need to be competitive in order to attract and retain skilled staff and incentivize performance.

• Employment flexibility. Government needs to be able to adjust employment, for example, in response to demographic and technological developments.

IMF Survey : Not an easy task?

Garcia-Escribano: That’s right. Effective wage bill management is not an easy task. Reining in wage bill spending is even more difficult before elections and during times of...