Public and private sectors

One labour market, one labour law?

With outsourcing, the distinction between the public and private sectors is blurring in many areas – raising questions about whether there should be one labour law for all workers. By Miguel Ángel Malo, senior economist at the ILO’s International Institute for Labour Studies.

Comment | 18 March 2013
Miguel A. Malo, senior economist at the ILO’s International Institute for Labour Studies.
There are many occupations that can be found both in the public and private sectors. It’s the case of nurses, doctors and teachers, for example. The job might be the same, but the working conditions and employment relationships that apply to public and private workers are very different. Should that be so? In a recent seminar I attended on labour trends, a specialist suggested that the same labour law should apply to people doing the same type of job.

At first, one might be tempted to agree: that there is one labour market so there should be one labour law. But in reality, employment relationships are more complicated than that. Think about how public and private jobs are funded, for example. Governments pay for public jobs using tax payers’ money, while companies rely on the goods and services they sell to finance their workforce.

Profits are a key element that separates the public and private spheres."
Profits are a key element that separates the public and private spheres. Not only do they determine the funding of posts, they also influence how workers are remunerated. When profits are involved, it is easy to set monetary incentives linked to performance. The better a worker performs, the more money she or he will get. This hardly applies in the public sector, where workers enjoy the same types of benefits as their peers and wages depend on a scale.

Consider the case of teachers working at a public school, where parents do not make any direct payment into the children’s education. Any increase in teachers’ wages will add pressure on the school’s budget, which is usually less flexible than in the private sector. The school can ask for more money for the teachers but first it needs to show that the quality of its education is going up, and that takes time. Besides, any increase would have to be agreed across all public schools in the community and would have an impact on the entire school system.

Collective bargaining rights are not the same for public and private sectors."
However, a private school, because of its independent status, can raise salaries more easily and may be under pressure to do so in order to compete with other private schools in the area. By offering higher salaries, they are more likely to attract better teachers, which in turn will improve quality and attract more student applications. With more students, the school can increase tuition fees to pay for the higher salaries.

Finally, in many countries, collective bargaining rights are not the same for public and private sectors. For example, civil servants, (and other types of public workers), might not be able to negotiate their wages directly with the employer, as this would limit parliament’s prerogative to decide on the size and distribution of the government’s budget. This is usually compensated for by other benefits for public workers.

True, the public and private sectors are becoming increasingly interrelated. Outsourcing – contracting an external business for an internal process – is one way that’s bringing these two worlds closer together. But this convergence will never be complete. The public and private sectors are different by nature. And labour law has to reflect that.