The Changing Public Sector in Europe: Social Structure, Income and Social Security1
Following a growth period that lasted for one hundred years, the public sector in Europe has experienced stagnation and even a decline since the mid-80s. This applies above all to employment in the public sector. The growth to the limits in public sector employment is accompanied by a secular growth in state expenditure in relation to the Gross Domestic Product (GDP). This growth is to some extent a result of the strong growth in expenditure for staff, which accounts for a considerable part of state expenditure. Saving measures aimed at containing the increase in state expenditure mainly affected employment. There are reductions in the number of employees, full-time jobs are turned into part-time jobs, a further feminization of the public sector occurs. Another factor intensifying the growth in expenditure is the "upgrading" in the public sector: this means that the pyramidal employment structure shifts to a form with higher proportions of medium- and higher-level jobs.
State Expenditure: Growth to the Limits
The growth in state expenditure since the last century is one of the most interesting chapters of societal modernization. It demonstrates the increasing influence of the state in economy and society, the growing necessity of coordinating and controlling activities in the course of permanent differentiation and growth processes (Kohl 1983). One side-effect of growth in public tasks is the increase in personnel responsible for executing these tasks. This is, in fact, a logical and necessary process. Whereas first in the primary sector, and subsequently in the secondary sector, considerable increases in productivity were possible, it is maintained that this is not possible in the public sector to such a degree; staff-intensive activities prevail in the social services and in the educational sector (Baumols cost disease) (Towse 1997). The "law of low productivity of public services" has so far proved to be more or less correct, as the increasing rate of personnel in the public sector up to the 80s suggests. However, an increase in the productivity of public services cannot be denied. Human activity has been replaced by technological progress and inventions in this sector as in the other two economic sectors.
On the other hand, it is obvious that this massive rationalization is faced with far more difficulties than it is in the primary or secondary sector. Therefore attempts were made to put the brakes on the increase in state expenditure by slowing down the growth in the number of public sector employees, by "freezing" public sector employment or even cutting back personnel. The overall aim is to cut state expenditure and thus budget ("less state"). The result of the reforms in the 80s was, however, a merely temporary reduction in the increase in expenditure. It remains to be seen if the noticeable reduction of state expenditure (in % of GDP) in most west European countries since the mid-90s will be a lasting trend. In any event, the average rate of state expenditure (in % of GDP) in the quinquennium 1990-95 was higher in all OECD countries than it was in the decade 1980-89 (OECD 1997a, 72).
Public Sector Employment: Growth beyond the Limits
Whereas state expenditure has risen in most countries in the last decade, public sector employment has passed its peak and has been declining in all industrial European countries2. Since changes in income structures and pension schemes are difficult to undertake or partly even prohibited by law (constitutionally guaranteed principle of maintenance ("Alimentationsprinzip"), e.g.), the only possibility seems to be a reduction in staff expenditure. There are different ways to reduce these costs: first, by privatizing public enterprises (Post Office, Railways, energy supply, etc.) and thus achieving a (merely formal in part) shift of the personnel from the public to the private sector; second, by limiting the scope of public tasks and directly cutting back the number of employees; third, by redistributing work: full-time jobs are replaced by part-time jobs.
The consequences of these strategies are an absolute as well as relative reduction of employment in the public sector. The United Kingdom pioneered this development, but most European countries introduced measures to modernize the public sector, prompted by OECD acitvities (PUMA-Public Management Project). In Sweden and in other Nordic countries the economic crisis from 1990 onwards intensified the reduction of employment in the public sector.
Some important individual trends form the background to this global reduction of employment. The trend toward a feminization of the public sector that has lasted for some decades now is being reinforced by the reduction of employment. Whereas the ratio of women employed in the public sector in % of all women employed has stagnated since the late 1980s or risen only slightly, the ratio of men in the public sector (in % of all individuals employed) has declined strongly. This picture becomes even more drastic if one focuses on the internal structure of the public sector. The share of women in the public sector is still growing strongly and has long passed the 50 % mark in countries with a large public sector (such as Sweden, France, the United Kingdom). In Sweden, over 70 % of the total workforce in 1995 were women, in the United Kingdom almost 60 %. This strong increase in female employment in the public sector is the result of another trend: the increase in part-time jobs in the public sector. This increase concerns both sexes, for women it is much higher, however, than for men. In Europe, at least two employment patterns have emerged regarding the extent of part-time employment. In the United Kingdom and in Germany female part-time work is of greater importance. Swedens employment policy, on the other hand, was aimed at providing full-time jobs; it was only after the crisis in the 90s that the trend towards female part-time work became stronger.
No Worsening of the Income Situation in the Public Sector as Compared to the Private Sector
Income structures cannot be changed in isolation, they are always interrelated with the development of incomes in the economy as a whole. If the incomes in the private sector rise, the public sector cannot detach itself from this development without running the risk of becoming unattractive. If the income gap between the private and the public sectors becomes too big especially in the field of upper-level positions a noticeable lack of qualified personnel might occur. As shown in Table 1, the average incomes contrary to widespread assumptions are normally higher in the public sector than in the private sector. This is also true for the lower and medium income levels. The incomes of the highest-ranking staff group, however, are much higher in the private sector than in the public sector. The incomes of women, however, are generally higher in the public sector than in the private sector, since earnings in the public sector are gender-neutral as a rule, whereas in the private sector women often earn less than men in the same positions. The incomes in the private sector and in the public sector do not develop independently, however, according to OECD results; in some countries the relation between incomes has even developed in favour of the public sector since the 1980s. Another remarkable phenomenon are the pronounced privileges of public sector employees in south European countries; this preferential treatment can also be observed in the field of pensions (see below) (OECD 1997b).
Table 1: Pay differentials in public and private sectors, OECD-countries*
The results for the Federal Republic of Germany also illustrate the more advantageous income positions in the public sector as compared to the private sector. Table 2 shows the distribution of the incomes of households by occupational status. The percentage of self-employed above the median income is the highest, but it is only slightly higher than that of civil servants. The mass of wage-earning and salaried employees, who account for about four fifth of all individuals employed, has a much smaller share of households lying above the median. There is a clear hierarchy regarding the distribution of the monthly net incomes of households. The self-employed have the highest household incomes, civil servants rank second, followed by farmers, employees, and, lastly, workers. The unemployed have the lowest household net incomes. The distribution of household net incomes among income classes shows characteristic differences. While almost one third (29 %) of all self-employed have household net incomes of 10,000 DM or more, only 12 % of the civil servants and 9 % of the employees have incomes of this magnitude; blue-collar workers are represented only marginally (1 %) in this income class (Hertel 1997, 49).
Table 2: Private households
by occupational status of the reference
The Maintenance of Privileges in the Field of Social Protection in the Civil Service
The social protection schemes in the public sector belong to the oldest schemes of social protection. Most of them were introduced much earlier than social protection schemes for employees in the private sector. The largest part of civil servants pension schemes dates back to the first half of the 19th century. The civil servants and the wage-earning and salaried employees succeeded in the course of decades of severe struggles in wringing important features of social protection in the public sector from their employer (the state): permanence of employment and irremovability, the eligibility for pensions, non-contributory pensions (in Germany both are conceived as principle of maintenance ("Alimentationsprinzip")), contribution free benefits for dependants and survivors (widows and orphans pensions), and finally the calculation of pension benefits based on the final salary instead of the average salary (as it is the case in the pension insurance schemes of those employed in the private sector).3
Table 3 shows characteristics of pension regimes and the financing of civil servants pensions in 14 European countries and the European Union. This table refers to civil servants only for the sake of simplicity, since the social protection of contractual employees (manual and white-collar workers) strongly diverges from that of civil servants in the individual European countries. In Denmark the pension regime itself is guaranteed by the constitution, whereas the constitutions of other countries only define principles regarding the position of civil servants, that is, the right to receive appropriate old-age provisions (maintenance) by the employer. In about half of the countries, the civil servants themselves do not pay any contributions into their old-age pension schemes; instead the employer keeps fictitious contributions. These fictitious contributions are deducted from the salaries and wages. While it was possible to implement successfully in most countries the regulation that civil servants do not have to pay any contributions for themselves, this does not apply to dependant survivors pensions to the same degree. In the beginning private insurances had to be contracted for the widows of civil servants, with the exception of a few countries, where no contributions had to be paid for dependant survivors pensions. In some countries a contribution rate is defined for both kinds of benefits together; it is, however, predominantly devoted to dependant survivors benefits. In only 2 out of the 14 countries, the Netherlands and Switzerland, are civil servants pensions not financed from the state budget (tax revenue); instead, pension funds were created which were only used for pension payments. The contributions of civil servants paid into the pension funds are, accordingly, higher than (fictitious) contributions to the state purse.
Table 3: Type of pension regime and funding of pensions in European countries (approx. 1989/90)
The institutional regulations for the calculation of civil servants old-age pensions in 14 European countries share some features in common, despite all differences (Table 4). As compared to the private sector, the income replacement rates (of pensions as a share of the final salary) are in general better for civil servants than for employees in the private sector. If one takes the average of the 14 countries looked at, civil servants receive 74,9 % of the final salary (basic amount). If one takes into account the supplementary or periodically paid benefits, they receive 84,1 %. The reasons for the relatively higher income replacement rates of civil servants old-age pensions are that usually the final salary or the average salary earned in a period of some years before retirement are used for calculating the pensions; in the private sector, on the other hand, the average of the individual income during the whole length of service is used.
Since in a civil servants career the salary rises according to the age of a person, civil servants generally have the highest incomes by the end of their careers. The "income career" of an employee in the private sector is not as predictable and is often subject to greater fluctuations.
Table 4: Structure of social protection in the civil service on the basis of pension regulations, European countries (approx. 1989/90)
There are considerable differences between the industrialized European countries regarding the size of old-age pensions. In Austria, France, Greece, Italy, Portugal and Spain pension arrangements are very advantageous. Under certain circumstances the pension benefits are higher than the final salary. In other European countries the benefits are not as high, but never fall below 75 % of the final salary. As regards the length of service necessary to qualify for a full pension, the differences are considerable, too. In countries with high old-age pensions, benefit entitlement is acquired even after a relatively short period of service, as a rule, often after 35 years of service. The entitlement to a full pension becomes effective at the age of 35 in Austria, Greece and Spain, at the age of 35.5 in France, at the age of 36 in Portugal, and at the age of 37 in Denmark. Most countries require 37 years of service, Belgium even 45. The double privileges of civil servants in Austria, France and the four south European countries are striking: there a shorter period of service coincides with higher old-age pensions.
The combined result of income size and institutional regulations concerning pension entitlement (for lack of internationally comparable data) will be clarified by means of the example of the old-age income of civil servants and employees in the Federal Republic of Germany (Kneißl and Kortmann 1997). The result of the - on average - higher salaries of civil servants in particular and the more advantageous pension arrangements is that civil servants, as compared to other socio-professional groups, receive the highest old-age benefits. In addition, the principle of gender-neutral pay results in fewer differences in pension size (this also applies to additional benefits in the public sector) between female and male civil servants. These results show that several mechanisms interact: the on average higher incomes in the civil service (as compared to the private sector), the normally employment (seldom interrupted by unemployment), the final salary as the basis for pension entitlement (instead of the individual average income), and finally the higher maximum pension benefits (as compared to the private sector, where the maximum pension benefits are lower).
1 For each of these subjects there are separate fields of literature which have only little relation with one another. The number of relevant titles is so large that there is little use in mentioning only a few of them. Comparative research in these areas with the exception of research on state expenditure and, recently, on earnings, perhaps is still in a stage of development.
2 The state of the development of public employment up to the beginning of the 1980s and prior to the beginning of job cuts has been elaborated most extensively by Richard Rose et al. (1985).
3 The only systematically comparative stock-taking of pension regulations in the civil service of the EU member countries was presented by Neyens and Koob 1992.
Hertel, Jürgen (1997), Einnahmen und Ausgaben der privaten Haushalte 1993. Wirtschaft und Statistik no. 1, 45-58.
Kneißl, Gudrun and Klaus Kortmann (1997), Große Unterschiede in den Alterseinkommen. Informationsdienst Soziale Indikatoren No. 18, July 1997, 1-4.
Kohl, Jürgen (1983), The functional structure of public expenditures: long-term changes. In Charles Lewis Taylor, ed., Why Governments Grow: Measuring Public Sector Size. Beverly Hills, London, New Delhi: Sage, 201-16.
Neyens, Pierre and Edmond Koob (1992), Les Régimes de Pension dans le Secteur Public Européen. Maastricht: European Institute of Public Administration.
OECD (1997a), Historical Statistics 1960-1995. Paris: Organization for Economic Co-operation and Development.
OECD (1997b), Trends in Public Sector Pay in OECD Countries. 1997 Edition. Paris: Organization for Economic Co-operation and Development.
Rose, Richard, Edward Page, Richard Parry, B. Guy Peters and Andrea Gendali Pignatelli (1985), Public Employment in Western Nations. Cambridge: Cambridge University Press.
Towse, Ruth, ed. (1997), Baumols Cost Disease: The Arts and Other Victims. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
Dr. Franz Rothenbacher
Franz Rothenbacher is a sociologist at the EURODATA Research Archive at the Mannheim Centre for European Social Research (MZES) and managing editor of this Newsletter.