Thursday, March 19, 2009

Lower salary vs unemployment

Recently we all have heard of too many stories of strikes, press conferences, and interviews regarding changes in the pay structure for the civil servants and other state employees. I can understand that 'take home' income if suddenly decline by 2K or 3K would of course be a problem for all of us. Further, professionals like teachers and doctors will be definitely frustrated when they feel that the government does not value their professions, when the government pays an enviable high salary to police officers, army, and many political posts.

The macroeconomic problems that we face today are the making of many years of mismanagement in the past. The evidence is seen from a very simple analysis of the fiscal expenditure and the deficit. Whats more, the deficit that has been finance domestically by printing money. The resulting inflation, and as a result, government employees demanding a higher salary. The government employs more than 15% of the population, and almost 50% of the state budget goes to the wage bill. On top of that, we are spending almost Rf89 million (USD 7.0 mil) annually to all the political appointees at present. This increases to Rf119 million (USD 9.2 mil)annually when we include the Parliamentarians' salaries. In other words, we are spending more than half a million dollars every month only on political appointees. The worst part: most of these political positions are not filled based on their qualification or capabilities. Meaning that those fat salaries that they get are not performance-based. In the end, hard-earned income by the government is spent on unproductive political personnel, with a very high opportunity cost. The saddest part: many of such political appointees are those with other means of income. In the end, people with no other means of income, with low monthly salaries suffer. period.

Then, the other part of the story. Those who are demanding higher salaries, and organizing strikes and press conferences. I keep wondering, do they really have a bargaining position here? I mean, what if they lose their job today, do they have many options in Maldives, and so seek employment elsewhere? The teacher who is demanding a higher salary, if loses his or her job today, will that person be able easily get a secure job paying much higher salaries? Well, if they can, there can be a bargaining power with them. Or else, accepting a lower salary makes much sense than losing the job. I'm not arguing that we have to keep quiete, whatever we get, and however we are treated. That's the not the point here. Higher salaries for civil servants make the government grow bigger, increasing its expenditure, and making the fiscal deficit unsustainable. It also leads to higher prices in the economy when the deficit is monetized. When the world is in a recession, it makes more sense to even accept the current salary than losing the job. Why lose the job you may ask. When the government keeps on growing, and if the government revenue start shrinking, it would be forced to cut down on the wage bill, and a possible lay off of workers.

The government has some aspects to consider. When these civil servants demand higher pay, how strong are their bargaining power. The government also needs to make these civil servants understand that during times of economic recession, the government may not be able to meet all the demands for higher salaries, and that even accepting a cutback on salaries makes more sense than losing the job, and not earning any income.

If there's anything important enough to organize demonstrations, or press conferences, it is on pressuring the government to reduce the number of political appointees, reduce their pay, and make their appointments based on capability or performance. At least all of us have that barganing power over the government, as we are the people who vote in the elections.