A UWI economist says the Chief Personnel Officer’s decision to offer a 13 per cent salary increase to the Public Services Association (PSA) is “generous” as outstanding wage negotiations continue for the period 2011 to 2014.
In a telephone interview yesterday, senior lecturer and head of the Trade and Economic Development Unit of the St Augustine Campus of the University of the West Indies, Roger Hosein, described Government’s latest offer as “reasonable,” in light of the global economy and local market factors.
The offer, made on December 10, outlined the revised terms of employment and conditions of service for civil servants and those employed at various statutory authorities. The CPO, Stephanie Lewis, has proposed a breakdown of two, four and seven per cent, along with a Cost of Living Allowance (COLA) of $160, $175 and $225 for the years 2011, 2012 and 2013 respectively.
At a press conference on Monday, PSA president Watson Duke said although they were thankful for the offer, they hoped the additional seven per cent they were seeking could be found as negotiations continued. Officials have declined to say how much money was needed to pay public servants and how that would affect Government’s expenditure.
According to the 2015 budget document Draft Estimates of Expenditure, the Government allocated $8.72 billion for personnel expenditure in the period October 1, 2014 to September 30, 2015. That is a reduction in the $9.11 billion that was the provisional estimate of the amount of money that the Government spent on wages and salaries during the 2014 financial year, according to the Review of the Economy 2014.
Finance Minister Larry Howai has called on government ministries to reduce their expenditure by $1.3 billion as falling oil prices are expected to hit the amount of revenue the country collected in the current financial year. The initial projected deficit for 2015 was 2.3 per cent or $4.3 billion. Howai made the statement in Parliament last month as he addressed the impact of falling oil prices on Government’s fiscal operations.
He shared the negative report, including Government’s expectation that oil prices would decrease to around US$60 a barrel before levelling off at US$65 a barrel. The West Texas Intermediate closed yesterday at US$56.02 a barrel Referring to the CPO’s offer, Hosein questioned if employee productivity had increased more or less than 13 per cent. He explained that if the output of a worker was not greater than 13 per cent, it would mean that the cost a unit would have increased.
However, if it proved to be more than 13 per cent, that would mean Government benefitted and that although it would be paying higher salaries, it meant that output had also increased, he added. Hosein warned that there was the possibility that Baumol Cost Disease problem could occur.
The Baumol problem is a phenomenon which began in the 1960s and involves an increase in salaries in jobs that have experienced no increase in labour productivity, in response to rising salaries in other jobs which did experience such labour productivity growth.
Hosein said: “The services sector tends to be associated with lower productivity increases than the booming sector, that when wage demands in the services sector try to match that of wage demands in the booming sector, it could lead to a long- term drag on the growth of the economy.”
He warned that “given that the economy is already at full employment, wage increases in one sector may potentially lead to an increase in the price level of the economy as the purchasing power of workers in the services sector may also increase.
“Thirteen per cent at this juncture in the economic cycle is reasonable and some may even say generous as the medium-term growth prospects of the economy seem unlikely to cross two per cent, given the trends in the key hydro-carbon output and price indicators.”