Macedonia Pay & Employment Modeling

1. Macedonia Pay & Employment Modeling

2. Wage Bill Reduction Simulation Model Purpose • Inter-budget user wage bill reduction prioritization • Budget user-specific employment reduction targeting

3. Summary of Model • Central authorities triage budget users. • Model determines wage bill percentage reductions required for each group of budget users required to meet pre-specified overall wage bill reduction target. • Budget users decide where and when to cut staff required to meet their assigned wage bill reduction targets. • Model predicts fiscal impacts, by BU and year, including NPV.

4. What the model showed • Budget User implications: Net savings are sensitive to seniority and months of contributions to the employment system. • Potential for wage bill savings: Employment reductions can readily yield net budget cost increases during and immediately following the period in which employment reductions are accomplished, while yielding positive NPV only after about five years. • Government policy implications: The Government could increase net savings by revising the country’s severance payment and unemployment compensation policies.

5. What happened in Macedonia? • Ministry of Finance was intrigued, but was unwilling to use model to target employment reductions. • Ministry of Finance decided, instead, to convert certain functions from public administration functions to contracted functions and make all decisions itself.

6. Civil Service Salary Scale Model Purpose • Predict fiscal impacts of implementing new Civil Service salary scale mandated by Civil Service Law

7. Story of model development and use • CS Law mandated complicated salary structure • Position-specific impacts were unclear • Overall fiscal impacts were unclear • Model made all fiscal impacts clear • Allowed Ministry of Finance to: • Use pay and employment database they developed • Notice unanticipated impacts of CS Law salary scale implementation. • “Hold harmless” CS Law provision • Pattern of point changes across positions

8. Results? • Ministry of Finance team decided to model individual salary changes, rather than averages. • Government revised CS Law to eliminate “hold harmless” provision. • Government decided to review the salary structure mandated by the CS Law.

9. Development costs of these models • P&E model: developed during two-week PEIR mission • Civil Service salary scale model: developed during two-week lending operation mission and revised during subsequent missions