Differences in salaries in the private and public sectors of Serbia

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In Serbia, there is a systemic difference in the level of salaries between employees in the private and public sector, to the benefit of civil servants. In other words, public sector workers receive higher wages than private sector workers.
First, wages in the private sector experienced a decline during the economic crisis, as seen in the decline in average wages in 2009, while wages in the public sector did not experience a similar decline. After that, salaries began to rise again in all sectors, and from 2013, the level of salaries in the civil service stagnated, and then was reduced by fiscal consolidation in 2015. But there are exceptions here as well: salaries in public companies were not reduced at this time, although public companies were obliged to do so, including the obligation to pay the difference in salaries to the budget. A large number of public companies have bypassed this in various ways, mostly by increasing the payment of various basic salary supplements. Thus, they fulfilled their legal obligation on paper, while in practice it was completely different. After 2017, wages throughout the public sector continue to grow, faster than before consolidation.
The difference between the salary in the public and private sector is called the salary premium. It is not something that exists only in Serbia, but is present in many other countries, but it is somewhat more pronounced in our country. In the Scandinavian countries, for example, it is even negative: there the salaries in the private sector are higher than the salaries in the state sector. There are some objective reasons for that, but that only partially explains this phenomenon.
First, the structure of public and private sector employees differs. In the public sector, a large number of workers must have a university degree (for example, almost all doctors, teachers and a large number of employees in the administration), while this is not the case in the private sector, where a larger share of workers do jobs for which higher education is not necessary. As salaries increase with educational achievements, we can expect that the salary in the civil service will be slightly higher than in the private sector, especially having in mind the level of education in our country – most employees have only secondary education.
Therefore, it is not good to simply compare the average salary in the civil service with the salary in the private sector. It is necessary to compare the salaries of people with a similar level of education and other characteristics. This approach means that the difference in private and public sector wages is almost halved, but this difference remains visible. People in the civil service still receive higher salaries than their private sector counterparts. When you look at the distribution of wages, this civil service premium is higher in the case of the lowest wages, and slowly decreases with wage growth – in the case of the highest wages, there is actually a private sector advantage.
In the case of civil servants, there are large pay gaps between employees doing the same or similar jobs, depending on who their employer is. This anomaly should have been corrected by the new rules on pay grades in the civil service, but after a number of years, the rules have not yet been adopted. In some civil services, the pronounced advantage of the private sector in salaries for workers with certain skills leads to serious problems in the functioning of civil services. Salaries in the tax administration, employees in IT
departments or project managers, who work on European projects, are significantly lower than what is offered by the private sector, which results in negative selection or inability to retain staff.
A special case is represented by state public companies. While local public enterprises pay salaries around or below the average, the salaries of state-owned public companies are significantly higher than the average. For example, the salary of a cleaner in EPS is comparable to the salary of a teacher at school.
There are reasons why the salary in the civil service should be lower than in a similar position in the private sector. First, a job in the public sector is much safer than one in the private sector, while a private company can disappear overnight due to a bad business strategy or some general crisis, which is by no means the case with the civil service. For example, while the total number of employees according to the records of the National Bank of Serbia (NBS) after the economic crisis in 2008 was 2,082,000, since then it has decreased every year in line with the poor results of the Serbian economy, to 1,866,000 in 2012, or about 220,000 less.
Another important reason is better working conditions in the public sector. At these jobs, all regulations related to labor rights are generally respected, while in addition to the Labor Law, there are special collective agreements. This leads to workers having several days of annual leave, being paid overtime and other wage benefits, which in theory should be done in the private sector as well, but is often avoided. Anecdotal evidence suggests that the total workload of civil servants is often less than would be considered adequate, due to the lack of clearly defined performance.
We can often hear as an argument that a higher salary in the public sector is a good thing, because it will attract the best to work in the civil service. Similarly, large private foreign companies operating in our country offer higher salaries to attract and retain the best workers. The problem with this argument is that the state already offers better working conditions and job security regardless of the amount of salary, so a significant incentive already exists. Also, for a large number of careers or educational profiles, the only solution is to work in the civil service, so this kind of incentive is not necessary.
The biggest problem, however, lies in the clientelistic or partocratic character of public administration in our country. Salaries in the public service are often higher to reward support at polling stations for employees and their family members. While today we see how public service workers are often forced to participate in rallies of the ruling party, the practice of employment in the civil service in exchange for political support in our region is nothing revolutionary or new.
The widespread demand for easy diplomas from private faculties with low criteria or directly purchased diplomas indicates that the knowledge and skills necessary for employment and progress in the civil service are not so necessary. In the private sector, where there is a clearer division of responsibilities and performance appraisal, a degree is not crucial for advancement, but knowledge and skills. On the other hand, in the state system, procedures are more important than results, so the existence of a diploma is more important than the knowledge behind it. Don’t forget that Bill Gates didn’t graduate from college because he dropped out to dedicate himself to the development of his company. However, if he applied for a job in the municipality of Becej, he could at best be a clerk in the registry office with a high school diploma.
That the government views public sector employees primarily as a set of ballots can also be seen in the policy of increasing salaries as soon as the economic conditions allow it. Salaries were again increased linearly for everyone, there was no serious analysis of who should or should not increase their salary. We had to wait for the exodus of health workers in order to pay a little more attention to this sector. In addition, the amount of the increase itself is far higher than it is economically viable, as the Fiscal Council has warned on several occasions.
This gap between salaries in the private and public sectors is primarily a consequence of political decisions. During the 1990s, the situation was reversed: the private sector offered higher salaries than the state for similar jobs. In the early 2000s, the situation began to change – the private sector still has higher salaries than the state in 2003, but in 2007 the situation was reversed and continues to this day. In the same way, it is politically possible to turn the situation around. Wages in the public sector should grow as much as it is economically viable in line with the economic situation, but not before some order is introduced through new pay grades. On the other hand, the pay gap between salaries in the private and public sectors in similar jobs should be eliminated, Talas reports.

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