“Effectively under this environment you have effectively no market within which to establish the “price/value” of an employee”

Agreed.

“I support an effective and efficient public sector and this can mean paying the public sector higher wages in some cases than private sector, but we need meaningful “price’ information to be able to inform that decision. The current institutional settings does not allow this and results in circular debates.”

Agreed.

“Since the measurement of productivity in the public sector is poor”

Agreed.

However, freezing wages – and not attempting to actually discover market value – is a very arbitrary way to go about things.

Even if they don’t have a proper price signal they have a quantity signal – there are areas where they get lots of applications and areas where they don’t. Fiddle wages based on that to start with – then they can start thinking a bit more 😉

Huh, pay in theses sectors has risen rapidly over the last decade – I would now NEVER call teachers underpaid. Also, society respects teachers and nurses – it is the core sectors (who are very well paid) that get the slack

@StephenR

Good points.

😀 hahahahaha

I think unemployment over much of Europe is already much higher – and given the greater level of wage rigidity it is only going to climb 🙁

Also, as they are stuck in the Euro, the small countries that are struggling can’t devalue to lower effective real wages – which is a killer

Well, depending on where you work you get good hours, good pay, and job security …

In the absence of price information, the public sector seeks other mechanism’s by which to judge their relative worth. Generally this is done by benchmarking themselves against each other. So what you get is a system where the public sector benchmarks itself against each other. So Nurses look at how much doctors are paid and seek remuneration levels similar (because they also are well qualified medical professionals), social workers ay “hey” we aso are qualified and impt and you need us as much as nurses so we will have a pay rise also. Then you get police going well we face a dangerous world and need to keep a relative wage to social workers so we need an increase. This leads to the fire service who say well were similar to police so well have the same if not more than what they got to keep relativities. Then you have defence with the same story. Teachers pipe up with the same story and so do doctors. At the end of the day are everyone has moved to adjust against each other you come back to the start and repeat the cycle. At no point though is there any information or incentives to change behaviours, all you get is either an inflationary spiral of wage increases until the public is willing to back the monopoly employer and then you have the reverse. This is a classic regulatory economics issue discussed by Posner and picked up in public choice theory.

So, whats the real story/problem. Lack of price information due to the institutional settings. Impact for the private sector is minor, except for the potentially large effect of public sector generated inflation (wage spiral) and increased taxation to feed the wage increases with potentially limited offsetting productivity improvement. Generally it is assumed that inputs = outputs for calculation of government in GDP (e.g. the g component of C+I+G+(x-m). However I understand that better statistical information from the UK and EU suggest that Inputs=Outputs assumption is untrue and with outputs beign lower than inputs. This suggest stated levels of GDP growth in many countries has been lower than offical statistics have been saying.

Why does this matter, at the end of the day it all comes down to productivity and how we can ensure we are getting the best out of NZ given limited resources available. I support an effective and efficient public sector and this can mean paying the public sector higher wages in some cases than private sector, but we need meaningful “price’ information to be able to inform that decision. The current institutional settings does not allow this and results in circular debates.

Since the measurement of productivity in the public sector is poor

A few at the top are paid well, but not as well as in the private sector. School teachers, Corrections Officers, police, the military and nurses are all modestly paid and many in number.

Yes, many government jobs do pay better than the $12.50 / hour that seems to be the maximum wage for new jobs.