Thursday, March 09, 2006

Revising the wages of civil servants

Gauri Mishra has an article on the front page of Business Standard today that I disagree strongly with.

The title is Boom sidesteps govt wages: Govt salaries remain pegged at 1996 levels. Her bottom line: The demand for a 6th Pay Commission to revise government salaries may not be totally out of place.

A more careful reading of the evidence is required. I think she has missed out the main story. The main story is simultaneously that while GOI employees at the top are incredibly underpaid - by market standards - the bulk of GOI employees (roughly 98% of them) are incredibly overpaid by market standards. Example: the full cost of a driver at the Ministry of Finance was estimated by me to be four times bigger than the cost of an unorganised sector driver. Not 4% higher, not 40% higher, but four times higher.

Going from anecdote to data, see Wage differentials between the public and private sector in India by Lokshin & Glinskaya, World Bank, 2005. The paper uses data for 1993-94 and 1999-00. They find on average, the public sector premium ranges between 62 percent and 102 percent over the private-formal sector, and between 164 percent and 259 percent over the informal-casual sector, depending on the choice of methodology... The wage differentials in India tend to be higher in rural as compared with urban areas, and are higher among women than among men.... There is considerable evidence of an increase in the wage differential between 1993-94 and 1999-2000.

The right principle to adopt is: At all levels, GOI should pay the lowest possible wage at which an adequate candidate can be hired. That's it. Wages should be high enough to get the right candidate for the job. The huge queues of unskilled labour clamouring for junior level government jobs proves that the wages there are too high. And at the top, the wages paid by GOI are 5x less than what they should be.

Sometimes I have heard the argument In the last 10 years, GDP has grown by 50%, so shouldn't GOI employees get a pay raise of 25%? This is using the wrong benchmark. It is not correct to compare the growth of GOI wages against the growth of private wages. What is required is to compare prices - at all levels - against prevailing market rates. GOI does this for everything else - GOI pays market prices for the steel that it buys or the paper that it buys. There is no reason why purchases of labour should be different.

Business Standard had a sensible edit on this on 3 February 2006.

16 comments:

  1. Sometimes our economic(s) newspapers do goof up on basic stuff. Link the salary to GDP growth- wow! It is well known the bureaucracy and most government departments are staffed with a lot of Class IV (I am not sure of the class, but peons,office boys) and these people are not only overpaid, but also underworked. And these jobs are literally auctioned and there is a mad rush for these.

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  2. I think you are absolutely correct in your observation and the driver’s example is perfect.
    But there are few more angles to this, which are highlighted, in the business standard article and editorial. I also believe that the upper class in the government is highly underpaid and overburdened. So we cannot discard the pay revision. I think we need to address this with market dynamics. One way could be that government outsources the group D jobs (peon, office boy etc) to the agencies, which are capable of providing manpower at competitive rates and cut the strength at no executive level (clerks etc) substantially.
    I think this will solve the problem upto a large extent.

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  3. What is genuinely needed is a sharp upward revision of wages at the top and a sharp downward revision of wages at the bottom. Now do you think that a sixth pay commission appointed by the UPA will be composed of individuals who will write such a report? :-) And, if such a report came along, do you expect the UPA will accept it?

    It's best to remember how the previous pay commission panned out, and have low expectations.

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  4. Hi Sir,

    All these years, I was under the impression that governments in India (state or central) are bad paymasters. Their payscales are abysmally low (both at the lower and at the higher level).

    Which also, again my own conclusions, was one of the major reasons for corruption in the officialdom.

    Low salaries, but positions which have a certain degree of influence on those around you (business or common man), seem to create a conducive enviornment for the one of the major parasites of society we know 'corruption'.

    So would it not be wise to pay the officialdom sufficiently well, attract more and more talented people at the middle and the lower level (the higher level certainly has pple like PM, the FM, and others), improve accountability and become like one lean organisation - GoI.

    -
    Ravi Purohit.

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  5. @ravi:

    incentivization cannot work if the institutions (in a more broad sense) arent proper.

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  6. Point of fact: Grade `A' and `B' in GOI is grossly underpaid, but other grades are grossly overpaid.

    Some people argue that high civil service wages are central to changing corruption. Singapore is a case in point. Lee Kwan Yew decided that senior civil service jobs are going to be amongst the best paid jobs in the city.

    Will high wages at senior levels combat corruption? I don't know. It's a research question. E.g. junior grades in GOI are grossly overpaid - are they less corrupt?

    There is a vibrant new literature on the economics of corruption. At the NBER conference in Beijing last year I sat through a talk by Ben Olken on the subject. Ben believes that civil service wages are a big issue, and that they need to be much higher. I'm personally convinced wages at senior levels need to be much higher so as to attract good people, but I suspect the corruption question is not primarily about wages.

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  7. Providing higher wages at the junior level government jobs will not by itself help reduce corruption. For that, the people themselves have to change. And because we can't realistically expect that to happen, the selection procedure has to be tighter. And usually anticorruption bureaus work at a much higher level. They should be made to spend a percentage of their time on these lower levels as well. Put the fear of the prison in them...

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  8. I think at lower level, the higher salaries have increased corruption. The reason is very simple. There is a great demand for such jobs (mainly due to higher salary and dowry). So there are people to pay hefty amounts of money to get such jobs. This obviosuly leads him to raise the corruption when he gets into.

    Possible solution could as suggested rajesh to outsource the lower cader like the case of security personnel.

    Raja
    http://ruralindia.blogspot.com/

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  9. Speaking personally, I would like to work as a scientist in local/state/federal government, and what did I see when I did a search for Indian institutions?

    A Turner, Fitter, Welder, Electrician, Driver etc for a elite government research agency earns 10000-325-15000, and about the same is given to a junior scientist who has a M.S/PhD. A scientist can within a month learn to do the basics of a Turner, Fitter, or whatever. I doubt the reverse is true.

    Some other insane requirements...

    1) Age should be below 30 or 35. Relaxable upto 5 years for SC/ST etc. What has age got to do with ability? You progress to a higher grade regardless of age, but no they go up the ladder anyway.

    2) Experience should be 5 years etc.

    3) Conveyance paid by second class railway. No video-conferencing or telephonic interviews?

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  10. I think corruption in the civil services is about greed and not the salary. A junior grade IAS officer earns a starter of Rs. 8000 min., with lots of allowances. I think this is enough to enjoy a decent if not luxurious life.

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  11. You are absolutely correct that the pay commission appointed by the UPA will never write that kind of report, which will suggest downward revision of payment for some grades. It will be political suicide if implemented by any government. In my view the government should outsource the group D services to competitive agencies which can provide man power at competitive wages.

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  12. I agree emloyees have to be paid their market alternative. Now by keeping wages in the lower quartiles, is the GOI attracting the right talent. Obviously the brightest, smartest, A team will not work for below market wages. So so the lower quartile wages should automatically lead to two kinds of people:
    a) People motivated by patriotism among other things willing to work for below their market potential
    b) B teams for whom the GOI wages are above their market alternative.

    I know the GOI has a few great people along with a lot of under performing employees.

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  13. There are many unknown (to non-GOI officers) issues.

    1. CGHS : Medical facilities : Many think it is great facility, little know that it is a curse. To go to see a specialist for suffereing child (even high grade fever) Through proper required procedures it takes 3 Days. And after that we have to pay huge differences in treatment as well as medicine charges. For surgeries stupid things like needle, cotton ertc are to be paid by employee.

    2. Travel TA DA
    For city like mumbai for Hotel Stay and DA Rs 500 is paid to a class 1 (very senior) GOI employee. Try finding a Hotel and 3 times food in Mumbai for Rs 500, i will leave my GOI Job if you could. For other cities the TA and DA is megere 120 Rs/Day.

    3. LTC : Only shortest route is paid. No programs are booked that advanced that one gets bookings for shortest route for entitled class. For class-1 scientist entitled for 2nd AC, the difference of shortest route and actual travel route some equivalent to Train charges of SL class. So effectively no LTC paid. LTC is only 2 Times in 4 yes FOUR years.
    4. Poor salaries.
    I am BE, Mtech and pursuing PhD.
    I am paid gross 25,000. I was first class distinction holder in my qualifications. Having urge to work as scientist brought me into GOI in SCientific position. I am a middle level senior scientist Today. My frinds in college who scored poorly in graduations are rich today with huge salaries stock options and what not. Yes i am affected, i am too human being and a family living in this society. How can i concentrate in my research when, back at home my child asks me why i dont drive office in car (for fuel i am paid 800 Rs where as my expense would be 2500 Rs).

    This Pay commission must bring out drastic changes, or i and many more like me will loose all hopes and will leave the jobs for better salaries in private. Remember only Capable people of GOI will leave Jobs as they only would be able to fetch better salaries in private.

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  14. Friends,

    I have served 28 years in Govt. including a long stint in Railways.

    One single instance of Driver cannot be taken to draw inferences. Please consider this - Railway tracks are maintained by Gangman. He is the least paid employee in Railways. A passenger coach costs about Rs.1 crore. If there were to be an accident damaging say 5 coaches the loss is about Rs.5 crores (cost of 5 coaches) plus about Rs 2 crores towards other items. Gangman is not offered any significant facility. He is required to work whether it is unbearably hot or unbrerably cold or when there is a very heavy rain. He is offered a very small quarters (just wo rooms - 1 kitchen and one living room). Owing to very tiresome physical work he becomes sick frequently and loses salary if he has no leave at credit. With the very meagre salary he is expected to perform exceedingly well. Do we have any comparable job in any other sector with which we can compare a Gangman? I do not know of one. Why bloggers do not take up such cases and instead concentrate on oversimplified matters and offer detailed comments? Please forgive me for stating that some such comments are far from reality. I have no intentions of hurting anyone.

    A clerical staff (LDC) is paid about Rs.8,000 per month in a city like Delhi. Is this excessive?

    A Secretary to the Govt. gets about Rs.50,000 per month while a CEO gets about Rs.2 to 3 lakhs a month. Can anyone having knowledge of the quantum of work done by a Secretary state that Rs.50,000 is excessive.

    Take the example of Driver. Driver gets about Rs.8,000 a month with an annual raise (increment) of about Rs.125/-. A BPO driver gets about Rs.10,000 a month plus tips etc. Is Rs.8,000 in Delhi or Mumbai excessive?

    To sum up, Govt. employees should be descendents of honesty and integrity. Till such time we do not offer them a realistically appropriate salary we are not going to achieve this objective. There are no applicants for several posts in Govt., forget large number of applications for lower level posts - this is no longer true in 2007.

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