Civil Service Modeling: Simplifying the Complexities of Civil Service Pay and Employment

1. Civil Service Modeling: Simplifying the Complexities of Civil Service Pay and Employment

2. Why Model?

3. Two Dominant Approaches to Civil Service Pay and Employment Reform • Macro-Analysis: The Meat-Axe Approach? 2. Micro-Review: The Bean-Counting Perspective

4. Macro-Analysis to determine appropriate size and cost of civil service • How it works: • Gross criteria to gauge nature and extent of reform needed • (Wage bill/GDP; government employment per capita; salary compression ratios, public-private wage relativities) • Pros and Cons: • Broad-brush reform guidance but over-simplified basis for government policy and lending terms and conditions

5. Micro-Reviews (Functional Analysis) to determine staffing and incentive levels • How it works: • Bottom-up scrutiny of individual organizational units’ objectives, tasks, and resource requirements • Pros and Cons: • Accurate picture of on-the-ground reality • Inconsistent methodology – wide variability in quality • Hard to do – takes forever • Difficult to sum up parts: challenge to build coherent civil service strategy for whole based on micro- unit-based details

6. Both approaches left big problems un-addressed • Low Government Policymaking Capacity for CSR • CSR-P&E Reality Hopelessly Complex • Competing Sectoral Considerations • New Wrinkles: Decentralization • Conflicting Government Objectives (Social Welfare vs. Fiscal Prudence) • Flimsy Empirical Basis to Donor-Country Dialogue (Discussion often on different pages)

7. What is the CS-P&E Model? Civil service modeling as middle-range analytic tool to bridge gap in existing approaches • Uses country customized data to render the key attributes of current P&E situation • Pay and grading arrangements • CS employment numbers • Sectoral/ministerial geographical particulars • Establishes reform objectives and parameters–“Five-year CSR vision” • Wage bill envelope • Compression ratio and salary levels • Public-private relativities

8. What is the CS-P&E Model? Civil service modeling as middle-range analytic tool to bridge gap in existing approaches • Simulates reform options – calculating and demonstrating costs of alternative policy measures • assumptions about timing and extent of retrenchment or retirements • implications of different levels of pay raises • altering sectoral employment levels (teachers, health workers)

9. The Joys of the Model • Provides governments with hands-on tool for plotting realistic reform strategy with concrete targets • Sorts out wheat from chaff – focus on big picture • Raises level of dialogue with donors (and donor understanding of issues) • Helps policy makers combat special pleading of sectoral interests

10. The Woes of the Model • Cannot (should not) render all detailed characteristics of individual country CS reality (Trade-off between simplicity/clarity and accuracy) • Garbage in-Garbage Out (Poor data mean targets may be off) • Cannot make hard decisions for policy makers • Haven’t dealt with some critical issues (pensions variables hard to incorporate) • Cannot replace good establishment management systems (HR database, tight payroll controls, etc.) • Cannot provide detailed information for reform implementation (for retrenchment; severance package design, etc. – consultancy needed)

11. East Asia ExperiencePilots in 6 Countries: Capacity Building Grant from ASEM Cambodia Timor Leste Philippines Mongolia Indonesia Thailand

12. 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)

13. Cambodia: 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 • Our solution: provide targets for salary adjustment and decompression, wage bill envelope, and rightsizing options through modeling exercise over several months

14. Cambodia: Reform options • 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

16. East Timor: 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

17. East Timor: Reform options • 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

18. East Timor: Short to middle-range approach • 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)

19. Results Cambodia • Govt. and donors on same page (single sheet) • Govt. proposed better – though not satisfactory – P&E strategy • Pinpointed analytic work agreed upon • Bank placing CSR at center of PRSC