Government employment and pay: The global and regional evidence

Abstract

Against the background of paucity of complete and reliable data as the basis for sound policy, this article reports on the results of a major international survey of government employment and wages in about 100 countries. Key findings are that: in developing countries as a whole, relative government employment is now less than half the level of OECD countries; the reduction in the role of the state in the 'decade of adjustment' is striking, and so is the erosion in real government wages in the poorest countries-particularly in anglophone Africa; decentralization in Latin America is visible in the substantial shift of employment from central to subnational government levels; and the lean and well-paid civil service of East Asia is one possible reason why rapid economic growth could coexist for so long with the governance weaknesses that have surfaced in the form of the Asian crisis. The article then undertakes an aggregate cross-sectional analysis of the determinants of government employment. In Africa and Latin America, relative government employment is positively associated with per capita income and the fiscal deficit, and negatively associated with relative wages and population. Clearly, the tendency for government to expand as the economy grows-the so-called 'Wagner law'-is still operative in developing countries. However, it seems no longer at work in OECD countries, suggesting that Wagner's law ceases to operate beyond certain per capita income level. The article concludes, nevertheless, with a reminder of the limits of cross-sectional analysis: even 'good facts' prove little by themselves-good analysis and policy must rest on country-specific quantitative and qualitative evidence.