Why does East Asia need civil service pay and employment reform

2. Why does East Asia need civil service pay and employment reform?

3. Public sector human resource management in the region has generally been commended: Aggregate public sector employment and wage bill data suggest that East Asian countries on the whole have managed their employment establishments reasonably well The five crisis countries have been replacing patronage with merit in professionalizing their civil services Korea and Malaysia have take merit reform the furthest, introducing competitive exams, performance evaluations, disciplinary oversight, career training, and professional ethics standards into recruitment and promotion practices pay levels have generally been maintained at reasonable levels to the private sector across the region Public sector human resource management in the region has generally been commended: Aggregate public sector employment and wage bill data suggest that East Asian countries on the whole have managed their employment establishments reasonably well The five crisis countries have been replacing patronage with merit in professionalizing their civil services Korea and Malaysia have take merit reform the furthest, introducing competitive exams, performance evaluations, disciplinary oversight, career training, and professional ethics standards into recruitment and promotion practices pay levels have generally been maintained at reasonable levels to the private sector across the region

5. Thailand has begun reforms toward a performance orientation in public sector resource management In China, the challenge is to professionalize a party-dominated bureaucracy, and to reorient public institutions that were not designed for an increasingly market context Constraints on Philippine civil service quality largely stem from politicization and clientelism Indonesia has the formal trappings of a merit system, but little in the institutional environment promotes performance or accountability in civil service managementThailand has begun reforms toward a performance orientation in public sector resource management In China, the challenge is to professionalize a party-dominated bureaucracy, and to reorient public institutions that were not designed for an increasingly market context Constraints on Philippine civil service quality largely stem from politicization and clientelism Indonesia has the formal trappings of a merit system, but little in the institutional environment promotes performance or accountability in civil service management

6. Above all, the crisis has necessitated a new look at improved public sector financial and human resource management Tight budgets are placing greater demands on government for: more careful financial management more efficient civil service human resource management to ensure that pay and employment practices result in efficient and high quality service delivery to the population Increased political voice, demands for accountability, and an emphasis on rooting out corruption have also placed a spotlight on civil service managementAbove all, the crisis has necessitated a new look at improved public sector financial and human resource management Tight budgets are placing greater demands on government for: more careful financial management more efficient civil service human resource management to ensure that pay and employment practices result in efficient and high quality service delivery to the population Increased political voice, demands for accountability, and an emphasis on rooting out corruption have also placed a spotlight on civil service management

7. How do we assess East Asian civil service management?The pace of modernization varies – most countries could do better

8. Aggregate public sector employment and wage bill data suggest that East Asian countries on the whole have managed their employment establishments reasonably well The five crisis countries have been replacing patronage with merit in professionalizing their civil services Korea and Malaysia have take merit reform the furthest, introducing competitive exams, performance evaluations, disciplinary oversight, career training, and professional ethics standards into recruitment and promotion practices pay levels have generally been maintained at reasonable levels to the private sector across the region Aggregate public sector employment and wage bill data suggest that East Asian countries on the whole have managed their employment establishments reasonably well The five crisis countries have been replacing patronage with merit in professionalizing their civil services Korea and Malaysia have take merit reform the furthest, introducing competitive exams, performance evaluations, disciplinary oversight, career training, and professional ethics standards into recruitment and promotion practices pay levels have generally been maintained at reasonable levels to the private sector across the region

9. Given the tight, post-crisis fiscal constraints, progress on civil service management may require pay and employment fundamentals to be adjusted.How can governments navigate a sensible but timely course of reform?

10. Two dominant approaches to the civil service pay and employment problem have been applied in the last decade and a half around the world Macro-analysis to determine the appropriate size and cost for civil services uses gross criteria -- e.g., wage bill as % of GDP, per capita government employment, salary compression ratios, public-private wage comparisons -- to determine nature and extent of needed reforms can provide broad-brush guidance for reform, but leads to over-simplified basis for government policy and lending conditionality Micro functional review to determine staffing and incentive levels on the basis of the individual organizational or sectoral unit by careful examination of the agency’s objectives, tasks, and resource capacity lack of consistent methodology has led to wide variability in quality, and thus utility of these exercises difficult to administer and often take years to complete difficult to aggregate into a coherent civil service pay and employment strategy A middle-range analytic tool is needed to bridge the gap between these two approaches to pay and employment reform The Civil Service Financial Model can provide as essential policy tool for governments wishing to plot a realistic civil service reform strategy using assumptions that can be customized to individual country circumstances and projections, the objectives is to systematically model the future civil service -- projecting the pay and employment features of an affordable government model simulates reform measures needed to achieve the future vision Two dominant approaches to the civil service pay and employment problem have been applied in the last decade and a half around the world Macro-analysis to determine the appropriate size and cost for civil services uses gross criteria -- e.g., wage bill as % of GDP, per capita government employment, salary compression ratios, public-private wage comparisons -- to determine nature and extent of needed reforms can provide broad-brush guidance for reform, but leads to over-simplified basis for government policy and lending conditionality Micro functional review to determine staffing and incentive levels on the basis of the individual organizational or sectoral unit by careful examination of the agency’s objectives, tasks, and resource capacity lack of consistent methodology has led to wide variability in quality, and thus utility of these exercises difficult to administer and often take years to complete difficult to aggregate into a coherent civil service pay and employment strategy A middle-range analytic tool is needed to bridge the gap between these two approaches to pay and employment reform The Civil Service Financial Model can provide as essential policy tool for governments wishing to plot a realistic civil service reform strategy using assumptions that can be customized to individual country circumstances and projections, the objectives is to systematically model the future civil service -- projecting the pay and employment features of an affordable government model simulates reform measures needed to achieve the future vision

11. The Civil Service Financial Model guides reform strategy design in three analytic phases Plugs in desired attributes of the future civil service, e.g., aggregate wage bill envelope, salary increases, compression ratio, private-public relativity Reconciles the future model with the empirical reality of the present civil service, identifying the gap between reform objectives and current conditions, and prescribes the pay and employment targets that need to be reached Models assumptions about costs and timing of achieving reform goals, allowing a realistic action program based on country conditions Results of implementation Early ad hoc efforts to model the future civil service were undertaken in the context of Bank reform efforts in Pakistan and Zambia Model proved effective in laying out trade-offs among conflicting policy objectives and the real price of potential reform initiatives Currently being field-tested in four East Asian countries where demand for civil service reform strategy development is highThe Civil Service Financial Model guides reform strategy design in three analytic phases Plugs in desired attributes of the future civil service, e.g., aggregate wage bill envelope, salary increases, compression ratio, private-public relativity Reconciles the future model with the empirical reality of the present civil service, identifying the gap between reform objectives and current conditions, and prescribes the pay and employment targets that need to be reached Models assumptions about costs and timing of achieving reform goals, allowing a realistic action program based on country conditions Results of implementation Early ad hoc efforts to model the future civil service were undertaken in the context of Bank reform efforts in Pakistan and Zambia Model proved effective in laying out trade-offs among conflicting policy objectives and the real price of potential reform initiatives Currently being field-tested in four East Asian countries where demand for civil service reform strategy development is high

12. Employment – no change

Salaries – increase to 90% of private sector levels over 10 years Personnel spending as a proportion of GDP increased from 2.25% to 2.75% Anyland: Reform Scenario A

13. Employment – hiring freeze3% attrition over 10 years

Salaries – increase to 90% of private sector levels over 10 years Personnel spending as a proportion of GDP decreased from 2.25% to 1.5% Anyland: Reform Scenario B

14. Cambodia The situation: Wage bill low by international comparators (US$ 52.4 million, 1.7% of GDP in 1999), but revenue projections missing targets set by Fund Very low average wages (4 times less than national minimum wage) and very compressed from top to bottom, 2:1 Census being carried out, but meanwhile no accurate information on numbers, placement, skills of employees estimated 164,000 civil servants (14 civil servants per 1000 population) The problem Pressure from Fund to maintain wage bill Higher salaries necessary to attract more skilled civil servants Fund’s solution: cut employment immediately (yesterday), but clueless about how much arbitrary target of 15%, allowing across the board 10% wage increase Reform options Our solution: provide targets for salary adjustment and decompression, wage bill envelope, and rightsizing options through modeling exercise over several months Raise salaries, but keep wage bill constant, by retrenchment (see chart on costs of employment) Different degrees of salary increases will mean different retrenchment imperativesCambodia The situation: Wage bill low by international comparators (US$ 52.4 million, 1.7% of GDP in 1999), but revenue projections missing targets set by Fund Very low average wages (4 times less than national minimum wage) and very compressed from top to bottom, 2:1 Census being carried out, but meanwhile no accurate information on numbers, placement, skills of employees estimated 164,000 civil servants (14 civil servants per 1000 population) The problem Pressure from Fund to maintain wage bill Higher salaries necessary to attract more skilled civil servants Fund’s solution: cut employment immediately (yesterday), but clueless about how much arbitrary target of 15%, allowing across the board 10% wage increase Reform options Our solution: provide targets for salary adjustment and decompression, wage bill envelope, and rightsizing options through modeling exercise over several months Raise salaries, but keep wage bill constant, by retrenchment (see chart on costs of employment) Different degrees of salary increases will mean different retrenchment imperatives

15. East Timor The situation: New country with no parameters -- wage bill envelope, salary scale, numbers and types of civil servants (and functions and structures) all still to be determined U.N. organization acting an interim government: setting wage precedents with its own staff; setting up structures, rules and budgets over next few fiscal years, with various binding consequences for East Timorese government when constituted 2002-3; donor group meeting in Lisbon end-June to determine East Timor’s immediate future The problem With little private sector activity, fluctuating prices and fluid labor market -- and invasion of expatriate assistance -- setting civil service pay and employment rules is an arbitrary exercise Budget planning assumptions: GDP conjectured at pre-ballot levels (US$ 300 million); revenues (donor-funded and later own-sourced) 15% of GDP; expenditures set even with revenues (US$ 45 million) Pay and employment assumptions: Employment 15,000 (about half of Indonesian civil service in East Timor province); Wage bill 65% of total expenditure (high by international standards); Salary scale -- only information on basic wage from cost of living study; Compression ratio of between 4:1 and 7:1 Reform options Determine salary scale: using Indonesian comparators; find reservation wage for benchmark jobs through quick and dirty comparator pay survey; cost of living study for living wage Determine wage bill by affordability and international comparators Try to match up rough functions and structures and staffing Use above and international comparators to determine staffing numbers Simulating future civil service pay and employment scenarios (Australian Dept of Finance providing assistance for modeling exercise)East Timor The situation: New country with no parameters -- wage bill envelope, salary scale, numbers and types of civil servants (and functions and structures) all still to be determined U.N. organization acting an interim government: setting wage precedents with its own staff; setting up structures, rules and budgets over next few fiscal years, with various binding consequences for East Timorese government when constituted 2002-3; donor group meeting in Lisbon end-June to determine East Timor’s immediate future The problem With little private sector activity, fluctuating prices and fluid labor market -- and invasion of expatriate assistance -- setting civil service pay and employment rules is an arbitrary exercise Budget planning assumptions: GDP conjectured at pre-ballot levels (US$ 300 million); revenues (donor-funded and later own-sourced) 15% of GDP; expenditures set even with revenues (US$ 45 million) Pay and employment assumptions: Employment 15,000 (about half of Indonesian civil service in East Timor province); Wage bill 65% of total expenditure (high by international standards); Salary scale -- only information on basic wage from cost of living study; Compression ratio of between 4:1 and 7:1 Reform options Determine salary scale: using Indonesian comparators; find reservation wage for benchmark jobs through quick and dirty comparator pay survey; cost of living study for living wage Determine wage bill by affordability and international comparators Try to match up rough functions and structures and staffing Use above and international comparators to determine staffing numbers Simulating future civil service pay and employment scenarios (Australian Dept of Finance providing assistance for modeling exercise)

16. Government ends up with:

A tool to facilitate policy formulation A vehicle for dialogue among key stakeholders Ongoing capacity for pay and employment monitoring