Workshop organised by the Directorate-General for Economic and Financial Affairs of the European Commission on 11 December 2013
Purpose and content of the workshop
The Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission is organising a one-day workshop around public wage expenditure topics, on 11 December 2013 in Brussels.
A proper design of fiscal adjustment is an essential aspect of a successful approach to consolidation. Economists often advocate putting emphasis on expenditure restraint as part of a well-designed consolidation strategy. There is no optimal government size, but the common presumption is that both potential efficiency gains in spending and the opportunity cost of incremental taxation increase more than proportionately with the size of the public sector.
Faced with the necessity of consolidating public finances and strengthening budgetary positions, in a context of subdued economic growth, a number of EU Member States envisage to put under stricter control personnel expenditures. Public wages account for a sizable share of public expenditure, and a large consolidation is hard to achieve without efforts at restraining the wage bill. This is also indirectly reflected in the EU policy advice to Member States (e.g. Council recommendations, EC's Annual Growth Survey), which stresses the relevance of an appropriate composition of the fiscal retrenchment and indicates that expenditure-based fiscal consolidations, even though having a higher multiplier in the short term, are more lasting, more credible and preferable in the medium-to-long term. This is especially true if the expenditure cuts preserve growth-enhancing items.
It is also true that expenditure based consolidation, especially if relying on cuts in public wage bills, not only has direct effects on fiscal variables, but could also have indirect effects on the private sector.
On the whole, however, the available evidence is not conclusive and further research is required.
The workshop aims at covering the following main topics:
a) the determinants of public wage bills and the interaction with the private sector;
b) the effects of public wages cuts on:
a) The determinants of public wage bills and the interaction with the private sector
First, the workshop aims at shedding more light on the economic and the political determinants of public sector wages and employment (e.g. Cahuc and Carcillo, 2011; Lane, 2003). Understanding the determinants that underpin wage growth in the public sector in the EU countries is very relevant for the DG ECFIN at large, especially when providing support to Member States in the context of economic programmes.
In the EU as a whole the long-term dynamics of the wage bill is rather stable, with few exceptions mainly related to the challenges posed to government finances by the current crisis. However the determinants of the evolution of the government wage bill are diverse and the interaction among them is not clear. In the long term, the demand of public services could increase with income. At the same time, the electoral weight of public sector employees and the quality of fiscal and political institutions can also drive the government wage bills. In the short and medium-term the determinants seem to be mainly related to the behaviour of public finances, especially for countries that need to consolidate.
Second, the workshop aims to assess the wage gap between the public and private sectors in the EU and the wage dispersion within the public sector, in order to understand the explanatory factors thereof, with special attention to regional differences. It is well documented that public sector employees enjoy, on average, a higher educational attainment, are more senior and more likely to take managerial positions. By contrast, a non-negligible share of private employment concentrates on low productive activities requiring lower levels of education.
The empirical literature available is far from conclusive. A number of empirical papers find a positive wage gap for public sector employees (e.g. for selected EU countries: Giordano et al., 2011), in particular for lower income brackets, while a negative gap is found for higher income ones (e.g. Befy, 2010; Lucifora and Meurs, 2006). However, a more differentiated picture emerges when considering the employee gender (e.g. Dustman and Van Soest, 2007; Melly, 2005). Hence, an accurate measurement calls for controlling for individual characteristics.
Besides, a proper measurement of the public-public wage gap, and a deeper understanding of its explanatory factors, is key in order to design policies aimed at improving the allocation of resources, especially the labour force. Relatively high per-capita wages in the public sector, if not justified by differences in labour skills or occupational position, may entail inefficiencies in many fronts. These may be potentially more important in certain economic sector and regions (e.g. Dell'Aringa et al, 2007; García-Pérez and Jimeno, 2005).
Papers discussing or providing new data and institutional or other information on the determinants of public wage bills and theirinteraction with the private sector, in the different EU countries or the EU/euro area as whole, are welcome.
b) The effects of public wages cuts on:
- successful consolidation results: the workshop aims at understanding whether and how the public wage/employment cuts are relevant to the achievement of fiscal targets. Given that the wage bill represents in most countries a large share of public expenditures, cuts in public wages and/or public employments are often implemented in consolidations. Empirical literature (e.g. Alesina and Perotti, 1995; Heylen et al., 2012; Hernández de Cos and Moral-Benito, 2012) tend to find that expenditure-based consolidations, especially when relying in public wage or employment cuts, have a greater likelihood of success as they are perceived as more credible by economic agents. On the other hand, Larch and Turrini (2011) find that cuts in public wage bills play only a minor role in successful consolidation. Further evidence is therefore needed to assess the role of pubic wages cuts in consolidation episodes. Also, the magnitude and the dynamics of public wages drift (during consolidation episodes) would be interesting to be further investigated.
- the efficiency and quality of public services:the workshop aims at assessing the implications of wage and/or personnel cuts for the efficiency and quality in the provision of public services (e.g. Glassner and Watt, 2010). Whereas there is often the presumption that public sector is largely inefficient (as general government consumption is assumed unproductive), the adoption of sizeable public wage cuts and/or the reduction in public employment can have a non-negligible influence on the quality and quantity of public services, which might entail negative consequences. Containment of public personnel expenditure must find a proper balance between consolidation needs and the maintenance of adequate standards in the provision and quality of key public services such as education, R&D and healthcare.
- productivity developments and competitiveness: the workshop aims at assessing the overall macroeconomic effects of public wages and public employment, with a special emphasis on the implications of consolidation efforts implemented in this area. In a context when many consolidation programmes aim to downsize the public wage bill, it is worthy, from a policy viewpoint, to identify the causality relationship between public and private wages (Lamo et al. 2012; Lindquist and Vilhelmsson, 2006; Demekas and Kontolemis, 2000). However, the empirical literature is scarce and far from conclusive. Also, the role, in the medium-to-long term, of multipliers associated to the public wage bills would be interesting to be further investigated, especially as fiscal multipliers are deemed to be now higher than in normal times.
Papers providing new data and information on public wages cuts effects, in the different EU countries or the EU/euro area as a whole, are welcome.
Against this background the Commission invites the submission of proposals for research papers addressing the above topics.
General information and conditions
It is expected that six to eight papers are to be presented the day of the workshop, followed by the comments from discussants and a general exchange of views among the participants thereafter.
Selected authors will be required to send electronically a fully developed version of their paper to DG ECFIN by 25th October 2013 and to present it at the workshop on 11 December 2013. The final version of the paper must be submitted electronically by 31st January 2014.
The final papers will have to be original work created in response to this call for papers and should be about 15,000 to 20,000 words in length.
In accordance with the conditions of the purchase order , the Commission intends to pay a fee of € 4,000 per selected and presented paper. The Commission will arrange and pay for travel and accommodation as well as a daily allowance of € 92.00 for one speaker per paper to present it at the workshop in Brussels, irrespective of whether the paper is authored or co-authored. The travel and accommodation arrangements will be made via a travel agency, acting on behalf of the Commission.
Candidates are invited to submit extended abstracts (up to 1,500 words) of research proposals related to the above mentioned topics. Papers can be co-authored.
Extended abstracts must be submitted together with
to the email ECFIN-GOVERNMENT-WAGE-BILL@ec.europa.eu, clearly mentioning the topic of the paper proposal in the subject line of the email. This mailbox is reserved solely for submissions of proposals. Submissions sent to other mailboxes or to Commission staff cannot be accepted. No other communication can be addressed to this mailbox.
Deadline for submission of your proposal (extended abstract and the above required documents): extension of deadline from 16 June 2013 (23:59 CET) until 28 June 2013 (23:59 CET).
The award criteria for evaluating the submitted research proposals are as follows:
The submissions will be evaluated, receive points in accordance with the aforementioned criteria and then ranked with a view to select about 6 to 8 proposals. The assessment procedure is expected to be completed by end July 2013. Candidates will be informed in due time of the outcome of the procedure.
Publication and copyright issues
Copyright will be governed by the provisions specified in DG ECFIN’s Special Conditions attached to the purchase order. Conditional on quality, papers contributed to the workshop might be published in a volume collecting the workshop proceedings. The Commission will retain the copyright.
For any additional information please contact
Francisco de Castro, email: firstname.lastname@example.org.
Angela D'Elia, email: email@example.com.
Matteo Salto, email: firstname.lastname@example.org.