Fragile and conflict-affected states: the role of the public sector as an employer

Editor's note: This blog post is part of a series for the 'Bureaucracy Lab', a World Bank initiative to better understand the world's public officials. Read the last blog on gender in the public sector. 

Currently around 1.8 billion people live in fragile, and conflict affected (FCV) environments. By 2030, the World Bank estimates that 2/3 of the world’s extreme poor will live in FCV situations. The COVID-19 pandemic further threatens to reverse decades of development. By 2022, the average GDP for countries affected by FCV is expected to be 8.6% below pre-pandemic projections. Addressing conflict and fragility, with an emphasis on prevention and prompt action is important to the success of the bank’s twin mandate of poverty reduction and shared prosperity. 

As WDR 2011 report on conflict, security, and fragility emphasized effective public institutions, fostering accountability, enhancing service delivery, and promoting citizen engagement are necessary in addressing the drivers of fragility. However, interventions aimed at public sector reforms are difficult to implement. Every step within the reform process is highly political, as public sector workers represent a significantly large, often unionized, group that is at the center of most peace-building negotiations. The lack of a well-staffed and well-paid public workforce not only impacts the quality of social service provision, but weakens institutional protections against rent-seeking and corruption. An evidence-based understanding of the organization and compensation of the public sector workforce is, therefore, an important first ingredient into developing reform strategies that are politically mendable, fiscally sustainable, and analytically sound.  This blog presented some insights into the nature of the public sector workforce in FCV contexts and aims to provide some empirical measures of state capacity and equity in FCV environments.

The public sector plays a crucial role as an employer.

A dynamic labor force producing good jobs is a necessary component to the World Bank’s poverty agenda. Within the labor market, the public sector often accounts for nearly thirty percent of all paid jobs with the relationship being stronger in FCV countries (Figure 1). This share is even higher for formal sector jobs where over half of all formal jobs exist in the public sector in FCV countries. Additionally, since many of these formal jobs are for teachers, doctors, nurses, police officers, and soldiers, these jobs provide careers and social mobility for many. Thus, recognizing the important role of public sector in creating jobs, delivering services, fostering social cohesion, and promoting inclusive economic growth is necessary in designing the reforms for countries affected by fragility. 

 

Figure 1: The size of public sector employment, as a share of

Source: Worldwide Bureaucracy Indicators 2.0 

 

The public sector wage premium points to wage disparities between the public and private sector.  

Public sector wages strongly influence personnel motivations and qualities and impact the overall labor market competitiveness and fiscal sustainability. In FCV country contexts, the WWBI allows first-time insight into the compensation practices. The average public sector across the world generally pays a 19.1 percent wage premium compared to all private sector salaried employees compared to 18.7 percent in FCV settings. However, given that public sector employees represent a certain segment of the labor force, formal wage workers represent a better comparator. Restricting the analysis to these workers - a more realistic comparator group - the premium for public sector workers globally reduces to 7.3 percent. The same analysis reveals that for FCV countries, this premium disappears and becomes a 3 percent wage penalty when compared to private sector employees with similar demographic characteristics (Figure 2).

 

Figure 2: Public sector wage premium

 Source: Worldwide Bureaucracy Indicators 2.0 

 

Further, these wage premia are not distributed equally amongst public sector workers. The WWBI reveals new insights into the compensation practices within the public sector. Globally, on average, the wage premium for public sector workers is lower for individuals with higher levels of education or becomes a wage penalty for or individuals employed in higher paid occupations such as managers and professionals. The same is true for FCV, but the downward pressures on wages in the public sector are even stronger. Compared to formal wage workers with tertiary education in the private sector, the average public sector workers in FCV countries experience a 16 percent wage penalty. However, we observe a 16 percent wage premium for public sector workers with secondary education (Figure 3). Similarly, individuals employed as professionals, or in managerial positions earn a 9.1 percent and 9.6 percent wage penalty compared to private sector workers in similar occupations; respectively. These figures allude to large opportunity costs for skilled workers in the public sector. These potential skill shortages in the public sector can further adversely impact service delivery outcomes.

Given that 61 percent of public sector employees in FCV contexts have secondary education or lower, findings point to the public sector serving a social welfare function.  Findings also suggest potential fiscal savings without compromising public sector productivity by outsourcing of some elementary functions.

 

Figure 3: Decomposed wage premium

Source: Worldwide Bureaucracy Indicators 2.0 

 

The public sector wage bill is not correlated with measures of institutional quality 

Globally, the public sector wage bill amounts to around ten percent of GDP but can take up almost half of all government expenditures. Within FCV situations, the effective management of the public sector wage bill is more pronounced. Generally, the relative share public expenditures devoted to public sector wage bill is only weakly associated government effectiveness (Figure 4), the affordability of the public wages becomes a more critical constraint for FCV countries, where a high public sector wage bill leaves less room for public investment and social transfers. Generally, high wage bills in countries affected by FCV partially reflect the traditional first resort role of the state as an employer. It can also be partially explained by the role of high incidence conflicts and terrorism requiring large security-related payrolls and through increasing demand for basic services and public infrastructure due to high inflows of refugees and internally displaced people. Given its focus on the public sector composition and compensation practices, the WWBI, is therefore ideally suited to assist in analyzing labor markets and the strengths of public sector employment and renumeration in FCV countries.

 

Figure 4: Wage Bill and Governance Effectiveness Index

Source: Worldwide Bureaucracy Indicators 2.0 and Worldwide Governance Indicators, 2018