Tuesday, 20 August 2013

The Norwegian Parliamentary Election 2013: Growth in Total Compensation of Public Administration Employees Outpaces the Industry and Mainland Norway

Next in our series on the Norwegian economy and bloated government spending, as part of preparing for the September 9 parliamentary election, is a closer look at overall compensation of employees in Norway. We use quarterly figures since 1995 from Statistics Norway in our short analysis below.

We look at longer term trends to smooth out shorter term volatility in the the data. During the last seven years and as of the quarter ending June 2013, total compensation for employees working in the industrial sector in Norway increased by an annual nominal rate of 6.7%. During the same period, total compensation for all employees working in public administration increased by an annualised rate 8.0%. Growth in total compensation for public administration employees therefore outpaced the industrial sector by 1.3 percentage points, or 19.7%. On the same basis, public administration compensation outpaced compensation growth for all employees working on mainland Norway (which excludes the oil and gas sector) by 1.6 percentage points, or 24.9%. As the chart below shows, total compensation for all public administration employees has especially outpaced both industry and mainland Norway since the second quarter in 2010.

Another interesting observation that can be drawn from the chart above is that the five peaks in the growth rate all took place in recent years (2010 onward). In conclusion, the growth rate in the total compensation for public administration employees has increased during the last three years or so while the growth rate in total compensation for both the industry and mainland Norway has declined. Net result is that the growth rate of the former has outpaced both industry and mainland Norway, and outpaced them by a significant margin. Looking at totals, annual total compensation to public administration employees increased from NOK 55.996 billion as of Q4 2005 to NOK 96.452 billion in Q2 2013. This is a total increase of NOK 40.496 billion, or 72.3%, since the Norwegian Labour Party took office. This increase by itself represents 40.1% of the fiscal deficit for mainland Norway in 2012 (see bottom chart) and should be viewed as no mere hint of a cost item that can be slashed in order to run Norway more prudently.

Part of this huge increase in compensation of public administration employees is due to an increase in headcount. We discussed this in a post yesterday.

Next we'll have a quick look at how compensation per employee has evolved during the same period and on the same basis as applied above. Compensation per employee is constructed using the same table referred to above and dividing total compensation by the number of employees for the three categories. Please note that the headcount figures reported by Statistics Norway are total employees (full-time and part-time) and not full-time equivalents. Assuming however that the ratio between full- and part-time employees has remained fairly stable, the compensation per head numbers should give us a fairly accurate indication of general trends over time.

The chart depicts a similar trend for compensation per head as for total compensation since 2010. The trend clearly shows that compensation per head for employees working in public administration has outpaced that of the industry and mainland Norway during especially the last three years. The higher total compensation growth for public administration employees has therefore been driven by both higher headcount growth and higher compensation.

Another interesting, and frightening, observation from the data set is that for the period ending 30th of June the average yearly compensation for a public administration employee was NOK 599,329 p.a. (ca USD 101,000). In comparison, the average compensation per employee in the industry was NOK 507,700 (ca USD 85,400) while the average for mainland Norway employees was NOK 493,168 (USD 82,900). As of Q2 2013, the average compensation for public administration employees was therefore 18.0% higher than that in industry and 21.5% higher than that for mainland Norway employees.

Still not convinced that the socialistic government (money is not important, right?) pays their staff well with the country's money? Well, the same data shows that employees working for the central government on average made NOK 617,247 p.a. (ca USD 103,700), 21.6% more than in industry and 25.2% more than the average employee on mainland Norway makes!

With this kind of utter lack of fiscal discipline (this is just the tip of the iceberg), it should come as little surprise that the Norwegian Labour Party led coalition government, with the fiscally irresponsible prime minister Jens Stoltenberg at the helm, has accumulated a total deficit for mainland Norway of NOK 578.6 billion during the course of just eight years. To put this deficit in perspective, this is the equivalent of a yearly central government fiscal deficit of 9.3% (deficit divided by revenues for mainland Norway) every year during the eight year period and the equivalent of almost 14% of the value of the Government Pension Fund Global, likely the largest sovereign wealth fund in the world, as of Q2 2013.

Including the oil and gas revenues of course turns the deficit into a surplus. But that should be no excuse for a poorly run mainland Norway accumulating massive deficits when the overall tax burden for its citizens is very high. Mainland Norway should be run with a small surplus! And not with the help of higher overall taxes! No party in the upcoming election even dare to think of, at least not mention, such a vision.  But that is not be expected as they are all in general pro big government and spending (at least as evidenced in the alternative 2013 budgets from the other parties). The risk of losing votes is too high and more important to avoid than being prudent and doing the right thing (that's democrazy at work for you). 

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