Wednesday, February 5, 2014

Research on the effect of salary disclosure

Last Friday, Alberta disclosed the salaries (and value of benefits) of anyone appointed under the Public Service Act and making over $100,000.

One of the outcomes of this disclosure is that we now can determine the veracity of a December statement by Derek Fildebrandt, the Alberta director of the so-called Canadian Taxpayers Federation. Back then, he supported Bill 46—Tory legislation to freeze wages among civil servants represented by the Alberta Union of Provincial Employees (AUPE)—by noting that:
...(T)he government's own data showing the average core provincial government employee costs taxpayers, on average, $120,000 a year in salaries, wages and benefits. 
While there are many deserving and hard-working members of (AUPE), its leadership hasn't grasped the seriousness of the province's fiscal situation. Rather than work with the government to address the serious problems with the costs of public sector employee compensation, they walked away from the negotiating table.
As it turns out, only 88 of the 22,000 workers (0.4%) affected by Bill 46 are in the list. The average government worker makes around $58,000.The real high rollers are managers (who are outside of the union), especially extremely senior bureaucrats.

That kind of sloppy argument—lumping two clearly different classes of employees together to get a politically useful but completely misleading number—ought to make us wonder about the quality of other CTF “research”.

Anyhoooo… so what was the purpose of this so-called “sunshine” list? According to then-Minister of Service Alberta, Doug Griffiths:
Disclosure just makes sure we keep both sides of the coin exposed. We’re able to attract great people but we’re also able to make sure we control the salaries in a way that’s appropriate for meeting our fiscal responsibilities to taxpayers.
How exactly the list will control salaries is unclear. Will individuals be so embarrassed that they voluntarily decline increases or demand rollbacks? Will their bosses put the brakes on salaries? This graphic (courtesy of the Wild Rose) suggests not…

Ontario enacted a similar law in 1996. The only analysis of the effect of that salary disclosure law that I could find was a 2010 research note from Canadian Public Policy. It examines changes in the salaries of university presidents and academics between 1996 and 2006:
…(I)n the academic sector at least, disclosure has not been associated with restrained salaries. Instead, if any tentative conclusion can be reached, it appears that salary disclosure has most likely been inflationary. This is consistent with numerous theoretical propositions that contend that disclosure puts more upward than downward pressure on wages.
So, what research there is on public-sector disclosures suggests it triggers aggregate salary inflation. There are greater gains at the bottom (as those who earn less demand parity) but, overall, there are across the board wage increases.

Obviously generalizing from one study is not great practice so I started looking at private-sector disclosures. Again, there is a paucity of data. The one Canadian study I found suggests private-sector disclosure among CEOs seems to yield similar dynamics:
…(F)irms paying highly restrain pay increases and save money, and firms paying below market limit their chances of incurring costs associated with such a low position by adjusting pay upward. On the left corner however, mandatory disclosure enables some other firms to race for the market’s top pay position. The empirical results show that this overbid for the top paying spot has a market-wide inflationary effect on the CEOs’ pay.
I’d like to say that it is strange how the Conservatives tend to be impervious to evidence when making policy decisions. But I can't. Ignoring evidence is standard operating procedure for Tories. For example, this afternoon I’m off to a focus group on Alberta's new workplace health and safety strategy that appears to (once again) emphasis education over enforcement—the exact opposite of what the evidence suggests is effective.

-- Bob Barnetson

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