Should You Get a Government Job?
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Should You Get a Government Job?

Investment
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5.5.22
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Joseph Darby

Want a 24% pay rise? Get a New Zealand government job

Wellington is known for its wind, quirky cafes, and well-paid residents. The capital city is home to the highest salaries in the country, thanks to it being the seat of our government. In Wellington, the ministries, departments, and agencies radiating out from around the Beehive – and some sources say more than 30% of Wellington’s workforce  - are employed by central government and state-owned enterprises. This figure would be even higher if local government were included.

It’s common knowledge that central government workers receive a decent salary. Rob Heyes, Senior Economist at Infometrics confirmed this with Stuff.co.nz, saying that public sector salaries are a key factor for Wellingtonian’s high earnings: the average Wellingtonian wage for 2022 sat at $81,280, whilst Auckland came runner-up with $79,641.

This information begs the question who really has it better: the public sector or the private sector employees, and whether there’s more to see beneath the headline pay difference.  

Is There Really a Pay Difference?

Understanding the Public Sector

The public sector employs an astonishing number of employees – over 18% of the nation’s workforce by one count, with 448,200 people employed by the government in 2022. Local government, public service, the health sector, the education sector (including primary, area and secondary school staff), and Crown entities make up these numbers.

Pay bands for these jobs vary hugely. Teachers are widely regarded as underpaid, with starting salaries beginning at $51,358 and capping at $90,000. Whilst at the other end of the pay scale, The Public Sector CEO Rich List reveals many people earning nearly one million dollars.

Higher Wages for Public Sector

The data is in, and it’s bad news for those employed in the private sector – the average hourly rate for government employees is $44.76 versus $36.09 for the private sector. That’s 24%, which anyone in this economy would agree is a decent chunk of change!

As the Institute for Fiscal Studies (IFS) in the UK points out, public-sector workers are generally more highly educated and as such command higher wages in the labour market. As the BBC notes “The problem with comparing average earnings for the public and private sector is that highly educated professionals would be expected to be earning more.” This reasoning probably also applies to the New Zealand context, though interestingly in the UK, the average private sector worker is paid more than the average public sector employee!

Comparing Wage Growth

Data from Stats NZ show wage growth for the public sector only increased by 4.6% in 2022, and the private sector increased by 8.6%.

So, chalk one up for private workers: pay is increasing faster in the private sector than for public counterparts!

Growing Workforce

If you’re selecting a career, you want to be where the growth is! There’s no point starting a new role to only find you’re replaced by a robot or software. A case in point: in response to higher minimum wages and other cost pressures McDonalds just opened their first fully automated restaurant, replacing people with robots.

Like it or not, in recent years growth in New Zealand public sector jobs has far outpaced overall employment growth, so the public sector wins this measure easily. Over the last five years, the overall public sector workforce increased by 15.3% (with central government up 15.7% and local government up 12.5%). This compares with a 9.4% growth in the private sector over the same period.

CEO Earnings Public vs Private Sector

The earnings of top CEOs, public or private, can cause heightened emotions at the best of times, let alone during a cost-of-living crisis!

Even so, we thought it apt to investigate the earnings of public sector and private sector CEOs to get a better understanding of the pay disparities, if any, between them and what that might mean for readers.

The results show there is a large gap between top private sector CEOs and their public sector counterparts, although they do share a commonality – earning far more than the average punter. A 2021 Stuff survey found chief executive Ross Taylor of Fletcher Building’s yearly earnings sitting shy of $7 million. Lewis Gradon of Fisher & Paykel Healthcare bought home a cool $4 million, and John Cullity of Ebos $3.9 million. (Despite the headlines, the average CEO earns nowhere near these figures).

By comparison, the highest reported public sector chief executives aren’t faring so well (though keep in mind we’re taking millions of dollars here!). Matt Whineray of Guardians of New Zealand Superannuation earned just over a million dollars in 2019, yet data shows most public sector CEO salaries aren’t paid quite as much.

The difference between private and public top CEOs may reflect a lack of competition to the public entities: private sector CEOs lead organisations which compete with other organisations for market share, whilst most public organisations have no competitor so are at little or no risk of going broke! For instance, if you’re an Aucklander and don’t like your water provider, you can’t simply switch to a different supplier, you’re stuck with Auckland Council-owned Watercare. Though the former CEO of Watercare still turned heads when it was revealed he pulled in nearly $800,000 each year. That number won’t be included in the overall government statistics either – as it counts as local government. Even so, local government salaries seem impressive: the latest Auckland Council annual report also revealed that 257 staff across council organisations earn over $200,000.

While these figures might not be relevant for most readers, the very top numbers do likely suggest that long-term leadership opportunities are better in the private sector.

Recession Proof Jobs

New Zealand’s economy shrank 0.6% in the last quarter of 2022, which is worse than many thought before the data was released. The Reserve Bank of New Zealand had in fact predicted 0.7% growth. The grim news is that “the 'Real recession' is still to come although the economy could be in one already.” Pay freezes are becoming common, particularly in small to medium size businesses (SME’s, which form the backbone of the New Zealand economy) and start-ups.

The cold hard truth is that during a recession, those working in the private sector are at more risk. If businesses don’t make a profit they have little choice but to cut costs, aka people. A CNBC list of recession proof jobs are, you guessed it, all in the public sector. Nurses, child-care workers, police, court, municipal workers and mental health counsellors make the top five.

Anecdotally, it seems recent layoffs are hitting private employers hard. Well-known companies such as Xero and Sharesies are laying off plenty of Kiwi workers, whereas there doesn’t seem to be same occurring in the public sector. This situation is still unfolding, so it may take some time before statistical data shows this trend.  

In any event, against such a backdrop a government job does look like the safe option.

Opportunities to Serve

Some people choose to work in the public sector to contribute positively to their community. Often, public sector jobs can be more focussed on improving the lives of others, which can appeal to some individuals more than roles focused on meeting the needs of others to create profit.

Is the Pay Gap Story the Same Overseas?

The disparity between public and private sector pay is smaller or – bizarrely – even reversed overseas.

  • In the UK, public sector workers are paid an average of 4.7% less than their private sector counterparts. Though in the UK public sector workers are more likely to be classified as ‘key workers,’ giving them greater job security.
  • Federal (central government) workers in the US earn on average 22% less than private sector workers. While one researcher concluded that public sector employees are underpaid relative to private sector employees, they identified they receive better pensions, job security, and benefits.
  • Our nearest neighbour, Australia, has broadly more similar results to New Zealand. Australian public sector staff reportedly earn 11% more than private sector employees, though of course that still falls short of New Zealand’s 24% gap!

The Bottom Line: Comparing Private and Public Sector Wages

On balance, the decision seems an easy one: 24% higher pay, a likely greater sense of service, better growth in number of roles, and probably better job security all suggest the public sector is the place to work.

Countering that, some data suggests wage growth is higher across New Zealand’s private employers, and – if top pay packets are anything to judge by – the opportunities may be

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