Pay Equity Declines With COLA Increases?
It’s time to end public sector COLA to be fair to all stakeholders.
Peter is a friend and past electoral candidate for councillor for the City of Kawartha Lakes. He posted this letter today to two City Council members pointing our why the use of percentage increases to wage adjustments will disproportionately benefit senior administrative personnel and politicians at the expense of rank and file employees.
As a Libertarian, I always favour merit pay over seniority-based compensation schemes. Public sector unions and their dues-paying members adamantly oppose the kind of merit-based compensation systems found in ‘for profit’ enterprises where exemplary job performance is much easier to identify and measure against the profit/loss yardstick.
COLA (cost-of-living adjustment) is an important variable in the determination of annual public sector pay increases. If COLA is to be fair to all stakeholders, then Peter’s analysis and recommendations appear reasonable on the face of it.
However, one stakeholder group in this analysis has been excluded - the taxpayer. Most taxpayers can only dream of benefiting from a COLA compensation protection scheme yet they are forced to pay that of public servants. How is this fair to everyone?
Given the unsustainable public debt levels, precarious state of the economy, employment uncertainties facing many Canadians from sweeping Digital Age impacts, and the very low interest rates that discourage persons savings, it’s time to end the government COLA scheme.
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Saturday, April 9, 2022
Dear Councillors (names removed)
Thank you for your effort to control the salaries of Council members. I have written before about the false god of percentages, to no avail. I wonder sometimes if anyone understands that it is the misuse of percentages that contributed to the ever-growing gap between the rich and the poor.
Statscan notes that the average spending per household, per year, is $61,334 (Feb 22, 2022). If the CPI increases by 2%, then the average household needs an increase in income of $1,226.68 to maintain their standard of living.
Compare this to wage increases determined by a 2% COLA . The mayor would get an increase of 2% x $115,177 = $2,303.54 . That amounts to a net gain of $1076.86, over and above the amount needed for an average household. The CAO gets approximately 2% x $200,000 = $4,000, or $2,773.32 more than the maintenance amount.
On the other hand, a city employee earning $45,000 a year would see $326.68 LOSS in purchasing power. His or her standard of living erodes.
In year (1), the gap between the highest and lowest wages is: $200,000 - $45,000 = $155,000. In year (2), the gap expands: $204,000 – $45900 = $158,100. The rich/poor wage gap (and associated purchasing power) has increased by $3,100.
This gap increases year after year and is aggravated by compound interest. The difference in the gap accelerates until it reaches an intolerable level that produces all manner of social problems.
So, let’s be clear about this pay equity issue. The rich, and the poor, pay the same price for the items that make up the standard basket of goods and services used in the CPI (consumer price index). Thus, they should have identical salary increases calculated against Statscan’s reported average household spending if COLA is really the goal.
It is true that the rich may have to pay more for their second Tesla EV, or imported wine, but those items are not necessities of life. The problem of wage equity could be partially resolved if we did away with percentage salary increases in the public sector.
Furthermore, annual municipal tax increases are also reported as percentages. This may, or may not, be a deliberate strategy to hide the real increases which are all riding the compound interest rails.
Thank you.
Peter
https://en.wikipedia.org/wiki/Cost_of_living