The prince and the pauper: Cyprus public vs. private pay

Throughout the debate on reform of public-sector spending, there has been little discussion about the difference between public-sector and private-sector pay.
There is a good reason for this. And that is that there are no up-to-date figures about it.
The Statistical Service (Cystat) has only just started the process of gathering data for 2010, therefore the most recent data refer only to 2006.
However, with a little help from Cystat and the Employers’ and Industrialists’ Association (OEV), we can give a reasonably accurate answer to the question of how public-sector and private-sector wages have developed in the past five years.

Public sector now earns double the private wage
Starting with the published data, we know that in 2006, the “total mean monthly earnings” for enterprises under private control were CYP 953 (EUR 1,457), while the mean earnings for the public sector were CYP 1,392 (EUR 2,378). We also know that average monthly earnings in the same year were EUR 1,641.
Therefore, in 2006, the average private-sector worker received around 40% less than a public-sector worker.
Looked at another way, a public-sector worker in 2006 received 1.6 times a private sector salary and 1.4 times the average salary (the average being pushed up by the public sector!).
How have wages developed since?
We know that public-sector workers and unionised private-sector workers (an estimated 70%) receive inflation-index pay rises twice per year.
And they are almost always increases, rather than pay decreases. Out of the 66 adjustments since 1978, only four have been decreases.
For the purposes of this estimate, I am assuming that COLA adjustments are the only pay rises enjoyed by the private sector. Of course, some private-sector workers, such as bankers, probably get other increases, but it is also true that many in the private sector get no pay rise at all, so I am assuming that it evens out.
We also know that since 2006 the unions have agreed several general pay increases for the public sector as shown in the table, amounting to around 6.8% over four years.
Finally, according to OEV estimates, the public-sector scale-based pay increases (what you get for sitting in your chair for another year) is around 3% per year.
These cumulative increases have amounted to a nominal increase of 40% for the public sector and just 13% for the private sector.
According to my estimates, average public-sector earnings are now EUR 3,264—about the total earnings of an A9 level civil servant—and the average private-sector wage is just EUR 1,646—around the total earnings of an A2.
So public-sector worker now earn twice the private-sector average.
And of course, until parliament passed the legislation last week, the public sector did not even have to pay any social insurance contributions.
Not only have public-sector workers enjoyed handsome pay rises these past few years, they have also received pay rises that are far in excess of productivity.
While productivity for the whole economy has risen in real terms on average by only 1% per year since 2006, real growth in public-sector wages has risen by an astonishing 4.1%.

The wider consequences of the pay gap
In practice a big difference between public- and private-sector workers has many consequences.
First, of course, is the enormous pressure on the budget, especially as large pay rises are accompanied by generous benefits and pensions.
Second, in so far as it affects private-sector wages in financial and professional services, the gap between productivity and wages depresses our competitiveness relative to other international business centres.
Third, the best talent gets drawn to the public sector, making it difficult for small businesses to hire skilled workers. This could be why we have a 20% unemployment rate among 15-24 year-olds.
Fourth, it means that the lower-paid jobs are increasingly done by non-Cypriots. According to Social Insurance data from 2010, the registered non-Cypriot labour force is now 30% of the total.
New blood on this island Cyprus is not a problem if the newcomers are helped to integrate. But recent European history suggests that if large-scale immigration is mishandled, it can eventually lead to local resentment and all kinds of social problems.