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

Why Model?

Two Dominant Approaches to Civil Service Pay and Employment Reform 1. Macro-Analysis: The Meat-Axe Approach? 2. Micro-Review: The Bean-Counting Perspective

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

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

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

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 oPay and grading arrangements oCS employment numbers oSectoral/ministerial geographical particulars Establishes reform objectives and parameters – “ Five-year CSR vision ” oWage bill envelope oCompression ratio and salary levels oPublic-private relativities

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 oassumptions about timing and extent of retrenchment or retirements oimplications of different levels of pay raises oaltering sectoral employment levels (teachers, health workers)

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

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)

East Asia Experience Pilots in 6 Countries: Capacity Building Grant from ASEM Cambodia Timor Leste Philippines Mongolia Indonesia Thailand

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)

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

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

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 –donor group meeting in Lisbon end-June to determine East Timor ’ s immediate future

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

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

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)

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