The impact of public sector adjustments in Europe

Fuelled by the economic crisis, budget deficits have plunged the public sector in Europe into an unprecedented wave of ‘adjustments’, leading to significant cuts in expenditure, jobs and wages. Interview with Daniel Vaughan-Whitehead, author of a new ILO study* on Public Sector Adjustments in Europe – Scope, Effects and Policy Issues

Analyse | 28 juin 2012
1) What different types of reforms have been carried out in the public sector?

Daniel Vaughan-Whitehead: The research of 15 high-level national experts shows a great diversity in public sector adjustments in Europe. Beyond common trends in public sector reforms before the crisis, including outsourcing, more fixed-term contracts, rationalization, decentralization, current adjustments have varied significantly according to their nature and magnitude, their timing or the policy mix.

"Public adjustments may lead to devastating effects on pay and working conditions", says Daniel Vaughan-Whitehead, author of the report.
Structural reforms prevailed in Sweden and France, while Greece and the Baltic countries relied on quantitative adjustments. In the United Kingdom, Spain and Portugal we rather find a mix of both policies. In the UK, employment and wage cuts were preceded by radical structural reform through outsourcing and privatization. Spain relied more heavily on temporary workers in the public sector. (Read ILO news: European public sector under threat)

 2) To what extent were these current adjustments guided by budgetary pressures?
DVW : Adjustments generally reflect the budgetary situation of each country. The higher the debt is, the higher the public sector adjustments are. Such is the case in Greece, Ireland, Portugal and Spain. Countries that had consolidated earlier, like Sweden, were under less pressure to carry out adjustments. Similarly, those having implemented public sector adjustments earlier – as Germany or the Netherlands- were not so much under pressure.

3) Have these reforms been efficient?

"The public sector may no longer be seen as the model employer"
DVW: The study shows that urgent pressure to reduce public expenditure tends to favour quantitative adjustments, mainly cuts in expenditure, jobs and wages in the public sector. While in some cases these adjustments could efficiently complement structural reforms in the public sector (like better wage-fixing systems and more efficiency), they can also limit the effects of these institutional reforms and even halt them. This is what happened in Portugal and Romania.

4) You refer to the negative impact of reforms on wages and working conditions, can you explain more about the extent of this impact?

Cuts affecting public sector employees eroded their purchasing power, putting them at risk of poverty.
DVW: The evidence we collected so far - mainly through case studies - show devastating effects on these two fronts. In a number of countries, public sector employees have lost the wage premium they traditionally had over the private sector, which was empirically justified by higher education levels in the public sector. In Romania, for example, the premium fell from 40 percent in 2010 to a penalty of -15 percent in 2011. What’s more, such dynamics may now lower skills and human capital levels in public sector occupations.

At the same time, uniform wage cuts along the wage scale have increased inequality and hit lower grades harder, thus plunging many workers below the poverty threshold. In Hungary, this concerns more than 50 % of public sector employees below secondary education level.

Public adjustments may have detrimental effects on women, as most of them are traditionally employed in this sector and benefit from its services.
Gender inequality has also been fuelled by public sector adjustments, as a result of the traditional importance that public sector employment has for women. Last but not least, job losses in the public sector have contributed to increasing the workload of the remaining public sector employees and their working hours, while payment rates for overtime have been reduced or frozen.



5) Has there been sufficient communication around public sector adjustments?

DVW: The neglect of social dialogue in the reform process and the abolition of a number of provisions that encouraged collective bargaining have contributed to lowering working conditions in the public sector. The sector has also lost its role as a model employer with job security, collective bargaining, employees’ participation in decision-making, good pay and working conditions, instead converging with private sector practices. These changes and the way they have been implemented have triggered a wave of demonstrations and strikes by public sector employees – often joined by other social groups – throughout Europe.

6) What are the prospects for the public sector in Europe?

"It is important that the public sector remains within the core of labour standards"
DVW: The prospects for human capital and job quality in the public sector do not look very promising. Deteriorating wages and working conditions in the public sector compared to those in the private sector have not only led to significant emigration – especially among doctors, nurses and teachers. The public sector has also stopped attracting the quantities of young qualified graduates which hitherto have been its lifeblood.

All these changes – especially when resulting in an increasing mismatch between increasing demand and falling supply – cannot be neutral for the future quality of public services. This can already be observed in education and health care, but also threatens public administration jobs.

7) How can we stop this downward trend?

DVW: The study shows the need to use social dialogue between government and employees, but also to consider a better mix between fiscal and other important considerations, such as equality, employment prospects, working conditions and the future efficiency and quality of public services. Only under these conditions will public services in Europe continue to provide an important source of social cohesion and economic growth.

*The study was prepared in cooperation with the European Commission. Journalists interested in accessing the study, please contact the ILO Department of Communication and Public Information: +4122/799-7912, communication@ilo.org